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ADDRESSES  AND  PAPERS 


ADDRESSES   AND   PAPERS 


BT 


GEORGE  EDWARD  DDE 

PRESIDENT   OF   THE 
HOME   LIFE   INSURANCE    COMPANY 


1898-1914 


PRIVATELY  PRINTED 

THE  RIVERSIDE  PRESS  CAMBRIDGE 

1914 


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NOTE 


The  following  addresses  and  papers  on  life  in- 
surance and  other  subjects  have  been  compiled 
in  this  permanent  form  as  being  primarily  of  some 
interest  to  my  friends  and  associates  in  the  Home 
Life  Insurance  Company.  They  cover  a  period 
of  revolutionary  change  in  the  general  conduct 
of  our  business  and  may  in  the  future  have  some 
historical  value  on  that  account. 


CONTENTS 

Dividend-Endowment:  What  it  means 1 

"The  Life  Underwriter" 7 

Dividends  in  Life  Insurance 21 

The  Present  Life  Insurance  Investigation  and  its 

Effect 27 

The  Insurance  Investigation 38 

The  Insurance  Investigation  and  the  Home  Life 

Insurance  Company  of  New  York 57 

Proposed  Amendment  of  the  New  York  Insurance 

Law 67 

The  Fundamentals  of  Life  Insurance 82 

The  Life  Insurance  Situation 96 

The  Distribution  of  Surplus  to  Policy-Holders  as 

affected  by  the  insurance  law  of  the  state  of 

New  York 108 

Government  Investigation  and  Regulation  .  .  .  126 
Effects  of  the  New  York  State  Insurance  Law  .  148 

Remarks  as  Toastmaster 156 

The  Proposed  Increase  in  Freight  Rates      .    .     .  167 

Compulsory  Sale  of  Stocks 172 

The  Sacredness  of  Trusteeship  in  the  Investment 

of  Life  Insurance  Funds 179 

The  Relation  of  Executive  Officers  and  Field 

Managers 191 


viii  CONTENTS 

The  Work  and  Problems  of  the  Executive  Depart- 
ment    198 

Address  as  Chairman  of  the  Seventh  Annual  Meet- 
ing of  the  Association  of  Life  Insurance  Presi- 
dents, Hotel  Astor,  New  York,  December  11, 1913  220 
The  Agent  as  a  Student  of  Conditions     ....  226 

Present  Business  Conditions 235 

Address  at  the  Dedication  of  Wright  Hall,  Yale 
University,  November  23,  1913 243 


ADDRESSES  AND  PAPERS 


ADDKESSES  AND  PAPEKS 

DIVIDEND-ENDOWMENT:   WHAT   IT 
MEANS1 

Your  attention  is  called  to  the  following  item 
under  "Liabilities"  in  the  statement  of  the  Home 
Life  Insurance  Company  for  the  year  ending  De- 
cember 31,  1897:  "Present  value  of  all  dividend 
endowment  accumulations  included  in  the  valua- 
tion made  by  the  New  York  Insurance  Depart- 
ment, 4  per  cent  interest,  $424,549."  This  item  of 
liability,  which  in  last  year's  statement  amounted 
to  $372,923,  and  which  is  rarely  ever  found  in  the 
statements  of  life  insurance  companies,  has  a  sig- 
nificance that  is  not  appreciated  until  it  is  thor- 
oughly understood.  It  represents  the  only  sound 
and  proper  method  of  handling  deferred  dividend 
funds. 

All  are  familiar  with  the  "tontine,"  "semi-ton- 
tine," "accumulation,"  "distribution,"  or  "de- 
ferred dividend"  plan,  by  which  dividends  on 
policies  are  allowed  to  remain  with  a  company  for  a 
given  period  (usually  ten,  fifteen,  or  twenty  years) 
and  are  then  paid  to  the  policy-holder  if  he  be  living 

1  Pamphlet  issued  in  1898. 


2  ADDRESSES  AND  PAPERS 

at  the  expiration  of  the  period  and  if  the  policy  be 
then  in  force,  but  few  persons  have  ever  asked  the 
question:  "What  is  done  with  that  fund  by  the 
companies  in  the  mean  time?"  No  question  con- 
cerns the  insured  more  vitally.  Divesting  the  mat- 
ter of  all  technical  phraseology,  the  insured  knows 
that  if  he  dies  the  face  of  the  claim  must  be  paid 
and  that  to  provide  against  that  contingency  a  con- 
stantly increasing  fund  (called  the  "reserve")  is 
laid  aside  and  held  as  a  liability  by  all  companies. 
He  also  knows  that  if  he  lives  to  the  expiration  of 
the  deferred  dividend  period,  the  dividend  accumu- 
lations must  be  paid  to  him,  but  he  looks  in  vain  for 
any  provision  in  the  liabilities  for  that  contingent 
payment.  If  one  is  guarded  against,  why  not  the 
other?  They  are  both  payments  due  at  a  future 
time  if  certain  conditions  are  fulfilled.  If  an  abso- 
lute liability  is  assumed  by  the  companies  against 
one  class  of  contingent  future  claims,  why  not 
against  the  other?  What  is  the  practice?  Most 
companies  ignore  this  liability  entirely  until  the 
payment  is  actually  due;  a  few  carry  an  implied 
liability  of  this  sort,  not  absolutely,  but  with  condi- 
tions attached,  so  that  the  final  disposition  of  the 
fund  lies  in  a  great  measure  in  the  hands  of  the 
company,  but  the  Home  Life  Insurance  Company 
has  from  the  very  inception  adopted  a  unique  sys- 
tem, which  is  absolute  in  its  provisions  and  com- 
plete in  its  protection.   The  fact  that  other  com- 


DIVIDEND-ENDOWMENT  3 

panies  are  now  considering  the  advisability  of 
changing  their  methods  to  correspond  more  nearly 
with  those  adopted  by  this  company  renders  it 
proper  that  a  clear  exposition  of  its  system  should 
be  given. 

On  every  participating  policy  issued  by  the 
Home  Life  Insurance  Company  a  dividend  is  ap- 
portioned annually,  whether  that  policy  is  taken 
out  upon  the  annual  cash  dividend  plan  or  whether 
the  dividends  are  allowed  to  remain  with  the  com- 
pany under  the  dividend-endowment  (deferred 
dividend)  plan.  If  the  latter  course  is  adopted,  the 
following  provision  will  be  found  in  the  policy:  — 

Each  and  every  dividend  of  profit  which  may  be  made 
on  this  policy  shall  be  retained  by  the  company  and  be 
applied  to  the  purchase  of  simple  endowments  in  favor 
of  the  holder,  which  shall  mature  and  be  payable  only  at 

the  expiration  of years  from  the  date  of  the  policy 

if  the  policy  be  then  in  force,  etc. 

In  other  words,  allotment  of  the  deferred  divi- 
dend is  not  postponed  until  the  end  of  the  deferred 
dividend  period,  but  every  year  the  policy  is  cred- 
ited with  its  earnings;  those  earnings  are  used  to 
purchase  an  endowment  payable  at  the  end  of  the 
deferred  dividend  period;  and  the  present  value, 
or,  in  other  words,  the  reserve  on  the  endowments 
so  purchased  is  carried  by  the  company  as  an  ac- 
tual liability  in  its  statement.  As  this  application  of 
the  dividend  is  made  each  year  at  the  time  of  its 


4  ADDRESSES  AND  PAPERS 

declaration,  it  is  possible  under  this  system  for  the 
insured  to  ascertain,  upon  inquiry  of  the  company 
at  any  time,  the  amount  of  accumulation  earned 
under  his  policy,  and  these  accumulations  are  not 
subject  to  any  future  change  or  rectification  by  the 
company. 

Herein  lies  the  unique  feature  of  the  method 
adopted  by  the  Home  Life  Insurance  Company  in 
the  treatment  of  this  most  important  matter.  It  is 
possible  under  this  system  for  the  policy-holder  to 
learn  from  year  to  year,  if  he  desires,  the  growth  of 
his  investment  and  to  satisfy  himself  as  to  the 
manner  in  which  he  is  being  treated  by  the  com- 
pany, and  therefore  the  company  must  under  its 
plan  maintain  the  reserve  upon  these  deferred  divi- 
dends and  thereby  still  further  protection  is  offered 
to  the  insured.  You  will  notice,  as  stated  above, 
that  this  fund  has  increased  during  the  year  1897, 
$51,626,  and  that  the  total  present  value  is  $424,549, 
so  that  its  importance  will  readily  be  appreciated. 

A  few  years  ago  an  Insurance  Committee  of  the 
Legislature  of  Massachusetts  undertook  an  inves- 
tigation of  the  manner  in  which  these  deferred  divi- 
dends were  handled  by  the  various  companies,  and 
the  press  of  Boston  commented  upon  the  matter  at 
some  length.  The  following  is  quoted  from  one  of 
the  prominent  Boston  dailies  issued  at  that  time: — 

One  of  the  points  raised  by  the  petitioner  was  that  the 
tontine  companies  never  considered  dividends,  under 


DIVIDEND-ENDOWMENT  5 

the  tontine  system,  which  are  not  paid  annually,  but  are 
deferred  for  a  period  of  years,  a  liability,  but  invariably 
quoted  them  as  a  surplus  of  the  company.  Among  the 
many  companies  represented,  but  one  resented  this 
imputation.  This  was  one  of  the  old  companies  of  the 
country,  the  "Home  Life"  of  New  York,  which,  though 
it  transacts  a  deferred  dividend  business  when  the  policy- 
holder so  requests  it,  prides  itself  upon  the  fact  that  it 
never  quotes  deferred  dividends  in  any  other  manner  than 
as  a  liability,  and  that  it  glories  in  a  surplus  which,  under 
the  strictest  interpretation,  cannot  be  construed  as  any- 
thing but  a  surplus. 

1  In  other  words,  every  claim  which  may  arise 
under  the  policy  contract,  either  in  the  event  of  the 
death  or  life  of  the  insured,  is  guarded  against  and 
provided  for  by  a  system,  simple  in  its  operation, 
and  the  growth  of  the  investment  is  always  open 
to  the  inspection  of  those  most  interested,  namely, 
the  insured. 

It  must  also  be  noted  that  this  system,  as  is  so 
aptly  expressed  in  the  above  quotation,  maintains 
"  a  surplus  which,  under  the  strictest  interpretation, 
cannot  be  construed  as  anything  but  a  surplus." 
It  is  not  subject  to  depletion  in  the  future  when 
deferred  dividends  become  due  and  payable  as 
they  have  been  provided  for  in  advance.  It  is  what 
it  claims  to  be,  a  surplus  over  and  above  all  liabili- 
ties, actual  or  contingent. 

When  comparisons  of  the  relative  strength  of 
various  companies  are  made,  when  questions  arise 


6  ADDRESSES  AND  PAPERS 

regarding  the  rate  of  interest  upon  which  premium 
calculations  are  made  and  reserves  computed,  it  is 
only  proper  and  wise  to  ask  first  of  all  what  pro- 
vision has  been  made  to  meet  these  future  accumu- 
lated dividends  which  will  certainly  have  to  be  paid 
unless  the  policy-holders  die  or  the  policies  are  not 
in  force  when  that  due  date  arrives.  There  are  many 
more  important  problems  to  be  met  by  insurance 
managers  than  the  maintenance  of  the  rate  of 
interest  on  their  investments,  and  none  is  of  more 
moment  than  the  manner  in  which  they  treat  the 
vested  interests  of  those  clients  who  have  placed  in 
their  hands  the  care  of  the  dividends  earned  upon 
their  premiums  and  who  are  eagerly  waiting  the 
distribution  to  be  made  at  a  future  date.  The  Home 
Life  Insurance  Company  is  fortunate,  indeed,  in 
having  met  this  issue  frankly  from  the  very  start 
and  stands  to-day  preeminent  as  the  one  company 
that  makes  its  deferred  dividend  apportionment 
each  year  and  carries  on  its  books  a  liability  to 
meet  future  claims  from  this  source.  This  is  the 
reason  that  its  "deferred  dividends"  are  called 
"dividend-endowments,"  for  they  are  endowments 
and  are  so  treated  on  the  books  of  the  company. 


THE  LIFE  UNDERWRITER' 


» i 


I  never  yet  have  met  a  good  insurance  agent 
who  was  not  a  good  talker;  in  fact,  I  have  always 
considered  that  gift  as  a  sine  qua  non  of  success  in 
your  profession,  but  I  have  had  no  occasion  to  test 
your  endurance  as  listeners.  I  therefore  appreciate 
greatly  this  rare  opportunity  which  you  have  now 
extended  to  me  and  shall  not  abuse  your  courtesy. 

Your  worthy  president,  in  offering  me  a  hearing 
before  your  body,  gave  me  the  choice  of  my  sub- 
ject, and  I  have  selected  a  theme  which  opens  the 
widest  range  of  discussion.  Obviously  the  topic 
is  one  with  which  you  are  all  familiar,  but  no  harm 
can  be  done  in  restating  old  truths. 

In  order  to  enter  at  once  upon  our  subject,  let  us 
inquire  what  is  the  meaning  of  the  term.  The  Stand- 
ard Dictionary,  which,  in  fact,  as  well  as  in  name, 
is  accepted  as  authority,  states  that  "to  under- 
write is  to  execute  and  deliver  a  policy  of  insur- 
ance." From  our  standpoint  this  definition  is  inac- 
curate, as  we  all  are  aware  that  it  is  not  the  province 
of  the  life  underwriter  to  execute  a  policy  of  insur- 
ance. The  latter  part  of  the  definition,  however, 
covers  succinctly  all  that  is  required  in  your  pro- 

1  An  address  delivered  before  the  National  Association  of  Life 
Underwriters,  July  12,  1899. 


8  ADDRESSES  AND  PAPERS 

fession.  You  are  expected  to  "deliver  policies  of 
insurance." 

Under  the  terms  of  all  policies  the  delivery  of  a 
contract  of  life  insurance  can  only  be  made  upon 
one  basis  —  that  is,  upon  the  payment  of  the  full 
premium.  Our  definition  may,  therefore,  be  slightly 
enlarged,  and  will  read  as  follows:  "A  life  under- 
writer is  one  who  delivers  policies  of  life  insurance 
and  who  collects  the  full  premiums." 

Whatever  the  practice  may  be  in  certain  quar- 
ters, I  maintain  that  any  man  who,  in  the  pursuit 
of  his  profession,  does  not  meet  the  requirements  of 
this  definition,  is  not  entitled  to  be  included  in 
your  association,  or  considered  in  the  presentation 
of  this  subject,  and  it  is  well  to  note  that  this  defini- 
tion eliminates,  as  it  should,  the  so-called  agent 
who  simply  "writes"  business  and  does  not  deliver 
it,  as  well  as  the  "trader"  and  the  "rebater." 

In  my  treatment  of  this  theme  I  wish  to  have  it 
clearly  understood  that  I  intend  to  approach  it  in 
a  practical  way.  Such  abuses  as  exist  will  be  men- 
tioned, but  I  will  not  consume  your  time  by  intro- 
ducing to  you  an  ideal  life  underwriter  under  imag- 
inary surroundings.  I  merely  hope  to  show  briefly 
what  the  underwriter  should  be  and  what  can  be 
done  to  make  your  profession  productive  of  the 
greatest  good  under  existing  conditions. 

If  we  could  eliminate  the  evils  from  the  profes- 
sion of  life  underwriting  the  rest  would  take  care 


THE  LIFE  UNDERWRITER  9 

of  itself,  and  I  propose  to  mention  some  of  these 
evils. 

First,  rebating:  I  have  stated  that  a  rebater  is 
not  a  life  underwriter,  and  therefore  you  may  won- 
der that  I  devote  any  attention  to  him,  but  as  a 
factor  in  the  situation  he  must  be  considered.  The 
rebater  is  not  a  producer  in  any  sense.  He  is  a 
parasite,  deriving  his  meager  sustenance  from  the 
fruit  of  others'  labors,  and  undermining  the  healthy 
growth  of  the  general  system.  "Evil  he  is  and  evil 
does."  Why  does  rebating  exist?  Some  say  because 
the  public  insist  upon  it;  others  because  the  com- 
panies tacitly,  at  least,  encourage  it;  others  because 
high  commissions  have  fostered  it.  Grant,  for  the 
sake  of  argument,  that  each  of  these  conditions  has 
assisted  in  its  culture;  none  of  them  is  the  cause. 
The  cause  of  rebating  is  lack  of  honor  and  lack  of 
justice  in  business  relations  —  shall  I  use  the  sim- 
ple term  dishonesty?  The  official  who  winks  at  it, 
the  insured  who  accepts  it,  and  the  agent  who  gives 
it,  are,  in  my  opinion,  untrue  to  themselves  and 
dishonest  to  their  associates.  It  is  an  easy  way  to 
dispose  of  one's  goods,  and  the  temptation  is  often 
well-nigh  overpowering,  but  it  is  not  fair  and  has 
no  place  in  your  system.  I  know  it  has  its  defend- 
ers, but  I  have  never  heard  an  argument  in  support 
of  it  that  could  not  be  reduced  to  lukewarm  justifi- 
cation of  its  use  for  purposes  of  self-defense. 

Its  advocates  will  tell  you  that  the  commission 


10  ADDRESSES  AND  PAPERS 

is  the  property  of  the  agent,  and  that  he  has  the 
right  to  dispose  of  it  as  he  sees  fit.  This  seems  at 
first  glance  plausible,  but  it  only  half-states  the 
case.  Is  the  commission  absolutely  the  property 
of  the  agent,  and  for  what  purpose  is  it  given? 
Under  the  present  system  of  large  first  commis- 
sions, it  must  be  remembered  that  the  company 
discounts  the  future  in  favor  of  the  agent  in  order 
to  give  proper  remuneration  for  his  services,  trust- 
ing to  his  honest  work  to  insure  a  stable  business 
which  will,  in  the  future,  be  remunerative  to  the 
company,  and  reimburse  the  company  for  the  com- 
missions advanced.  Without  such  assistance  few 
agents  could  hope  to  write  sufficient  business  to 
provide  a  proper  income  for  their  daily  needs.  Any 
diversion  of  this  commission  into  other  channels 
than  those  for  which  it  was  specifically  given  de- 
feats the  intended  object.  Further,  the  agent  who 
gives  the  rebate  and  the  applicant  who  receives  it 
are  not  the  only  parties  interested  in  the  matter. 
The  company  is  interested,  because  rebated  busi- 
ness is  not  stable  and  is  therefore  unprofitable, 
and  all  other  agents  are  interested  because  of  the 
demoralization  of  rates  which  must  inevitably  fol- 
low. If  you  wish  to  understand  what  a  rebate  is 
—  imagine  if  you  can  what  the  agent  did  who  offered 
the  first  rebate.  It  is  notable  that  his  name  is  not 
emblazoned  on  your  rolls  of  honor.  He,  in  that 
initial  transaction,  had  no  motive  other  than  a  de- 


THE  LIFE  UNDERWRITER  11 

sire  to  takean  unfair  advantage  of  some  competitor. 
His  fertile  brain  discovered,  in  the  concession  to  his 
client,  a  means  of  surreptitiously  ruining  his  rival. 
You  may  rest  assured  that  he  was  not  so  proud  of 
his  ingenuity  that  he  unfolded  his  discovery  to  his 
fellows.  The  rebate  has  been  and  always  will  be  the 
child  of  darkness  and  dreads  the  light.  Even  its 
strongest  defenders  do  not  advocate  its  open  em- 
ployment. 

How  can  it  be  prevented?  The  solution  of  this 
question  is  by  no  means  simple.  Compacts  be- 
tween companies,  no  matter  how  sincerely  entered 
into  or  how  strictly  enforced,  will  act  as  a  restrain- 
ing influence  and  that  is  all;  to  insert  in  the  policy 
contract  restrictions  on  this  point  might  deter  some 
applicants  from  accepting  a  policy  under  rebate 
conditions,  but  would  accomplish  nothing  further; 
the  persistent  and  untiring  action  of  the  companies 
themselves  will  do  much  to  lessen  its  popularity; 
but  none  of  these  is  a  remedy.  We  must  go  deeper 
and  seek  out  the  real  source  of  the  trouble.  Re- 
straints and  checks  are  valuable  and  I  am  strongly 
in  favor  of  them  all,  but  we  are  looking  for  the  cure. 
I  said  a  few  moments  ago  that  this  was  intended 
to  be  a  practical  discussion.  As  a  practical  man  I 
state  it  as  my  firm  conviction  that  this  disease  can- 
not be  eliminated  until  the  life  underwriter  is  edu- 
cated to  believe  that  the  scheme,  in  its  inception,  is 
dishonest,  and  therefore  unworthy  of  his  sanction. 


12  ADDRESSES  AND  PAPERS 

In  proportion  as  your  motives  are  sincere  and  hon- 
est in  just  that  proportion  will  this  evil  diminish, 
and  the  most  effective  method  of  attack  for  you  will 
not  be  specific  in  its  character,  but  must  be  by  cul- 
tivating an  esprit  de  corps  that  will  not  tolerate  any 
underhanded  methods  of  which  this  is,  in  my  opin- 
ion, the  most  glaring  example.  It  does  not  require 
the  millennium  to  make  this  state  of  affairs  pos- 
sible. It  gives  me  courage  to  look  back  and  see  the 
progress  toward  dignity  and  manly  strength  which 
your  guild  has  made  even  in  the  last  twenty  years. 
Can  you  afford  to  believe  that  further  development 
on  proper  lines  is  not  practicable,  that  it  is  the  mere 
hope  of  dreamers  and  of  visionaries?  In  your  na- 
tional association,  in  your  local  bodies,  and,  what 
is  still  more  important,  in  your  individual  capacity, 
you  have  a  power  which,  if  exercised  on  the  lines  I 
suggest,  would  be  practically  resistless.  Exercise  it 
constantly  and  persistently  for  the  uplifting  of 
your  work  and  you  will  be  amazed  at  its  efficiency. 
Am  I  relying  too  strongly  on  the  character  and 
ideals  of  your  body?  I  think  not. 

Some  years  ago  I  had  an  experience  in  one  of  our 
large  cities  which  made  a  great  impression  on  my 
mind.  I  called  upon  a  friend,  a  local  merchant  of 
large  business  experience.  He  informed  me  that  he 
was  contemplating  increasing  his  line  of  insurance, 
gave  me  the  name  of  the  agent  with  whom  he  was 
negotiating,  the  description  of  the  kind  of  policy 


THE  LIFE  UNDERWRITER  13 

suggested,  and  stated  that  it  was  arranged  that  he 
should  pay  only  twenty-five  per  cent  of  the  pre- 
mium. This  agent  was  a  man  of  influence  in  the 
city,  a  general  agent  with  a  large  territory  under  his 
control.  During  my  stay  in  the  city  I  attended  a 
luncheon  given  by  the  local  underwriters'  associa- 
tion. The  subject  discussed  was  "The  Rebate," 
and  the  most  eloquent  postprandial  orator  was  the 
agent  above  referred  to,  who  inveighed  against  the 
evil  in  severest  terms.  He  was  also  an  officer  of  the 
Association,  but  his  reputation  as  a  practical  re- 
bater  was  notorious.  Now,  on  account  of  his  high 
position,  the  gentlemen  of  that  association  did  not 
have  the  courage  to  meet  the  issue,  investigate 
these  vague  rumors,  and  discipline  the  offender.  On 
the  contrary,  for  some  time  he  continued  to  receive 
at  their  hands  all  the  honors  which  they  could  be- 
stow upon  him.  This,  I  fear,  is  no  peculiar  case.  It 
may  be  one  of  many. 

If  you  have  not  the  courage  to  meet  this  issue 
fairly  without  regard  to  rank  or  station,  it  is  best 
to  leave  it  alone.  If  you  are  not  prepared  to  stand 
together  and  stamp  it  out,  then  you  have  no  right  to 
raise  your  hand  against  the  other  abuses  which  have 
arisen  or  may  arise.  But  in  your  estimate  of  men 
remember  that  the  agent  who  places  a  vast  volume 
of  business  by  selling  it  below  its  cost  is  not  an  un- 
derwriter in  any  sense,  and  would  not  in  any  other 
line  of  trade  be  considered  an  able  business  man. 


14  ADDRESSES  AND  PAPERS 

In  short,  this  is  my  position  on  this  important 
question.  If  high  pressure  encourages  rebates  (as  it 
does),  stop  it,  and  this  is  largely  to  be  done  by  the 
executives  of  the  companies.  If  bonus  commissions 
foster  it  (as  I  believe  they  do),  eliminate  them  from 
all  contracts.  If  active  and  fearless  surveillance  by 
your  local  organizations  is  of  any  avail  in  suppress- 
ing the  evil,  cultivate  such  investigation  by  every 
means  in  your  power.  But  above  all,  bear  in  mind 
the  dignity  of  your  profession  and  the  intrinsic 
value  of  the  goods  you  sell,  and  remember  the  ruin- 
ous effect  upon  the  public  mind  of  establishing 
local  bargain  counters  for  the  sale  of  life  insurance 
policies.  When  rebating  causes  the  rebater  to  lose 
caste  among  his  fellows,  it  will  cease,  and  not  until 
that  time. 

Another  evil  is  "improper  competition."  Loy- 
alty to  one's  own  company  is  necessary  to  success, 
but  much  harm  is  done  to  the  general  growth  of  the 
business  by  the  bitter  attacks  against  rivals  which 
are  sanctioned  in  certain  quarters.  I  am  not  pre- 
pared to  say  that  the  companies  themselves  are 
altogether  blameless  in  fostering  this  evil.  Confi- 
dence in  the  strength  of  concerted  action,  the  belief 
that  our  interests  are  common,  is  the  ground  of 
your  organization,  and  you  should,  in  the  pursu- 
ance of  your  work,  remember  that  you  are  all  allies 
as  well  as  rivals.  Comparisons  of  policy  contracts 
and  of  the  relative  strength  of  the  various  com- 


THE  LIFE  UNDERWRITER  15 

panies,  reviews  of  their  past  records  as  affecting  the 
policy-holders'  interests,  are  all  legitimate,  and  add 
zest  and  variety  to  your  work,  and  I  do  not  intend 
to  discourage  such  proper  competition;  but  the 
bitter  invective,  which  is  too  freely  employed,  the 
misleading  use  of  the  too  popular  "ratio,"  the  dis- 
tribution of  so-called  "fighting"  literature,  the 
wanton  distortion  of  facts,  the  reiterated  claim  to 
superiority  in  all  departments,  are  weapons  of 
weakness,  fit  only  for  the  inexperienced  or  those 
who  have  little  real  belief  in  their  own  power.  You 
certainly  cannot  inspire  the  public  with  confidence 
in  the  general  system  of  life  insurance  by  stating 
that  your  company  alone  is  reliable  and  that  you 
are  the  one  ideal  agent.  The  habit  of  criticism  and 
detraction  of  others  grows  with  time,  and  nothing 
can  be  more  ineffective  in  results  than  the  ever-in- 
creasing egoism  which  inevitably  follows  such  a 
line  of  conduct. 

My  attitude  before  you  is  by  no  means  to  be 
one  of  criticism  only,  and  I  desire  to  speak  of  some 
of  the  salient  elements  which  make  your  profession 
both  honorable  and  responsible.  The  growth  of  life 
insurance  has  been  so  gradual  that  few  of  us  realize 
how  complex  it  has  become.  You  no  longer  are 
offering  simple  protection  against  the  economic 
loss  caused  by  death.  It  is  your  province  to  study 
the  business  and  domestic  life  of  your  client  and  to 
offer  to  him  that  particular  form  of  policy  which 


16  ADDRESSES  AND  PAPERS 

exactly  meets  his  case.  I  often  pause  in  admiration 
as  I  consider  the  talents  required  to  do  this  success- 
fully. You  must  understand  what  the  ordinary 
chances  are  in  every  line  of  commercial  life  which 
you  encounter;  you  must  be  able  to  gauge  the 
financial  ability,  both  present  and  prospective,  of 
your  client ;  you  must,  without  displaying  any  undue 
inquisitiveness,  learn  all  about  his  domestic  needs 
and  the  money  value  of  his  life  as  a  producer  for 
his  family;  you  must  then  select  from  the  policies 
offered  by  your  company  that  one  which  he  should 
have  and  present  it  to  him  clearly,  simply,  and 
effectively ;  you  must  post  yourself  regarding  similar 
policies  written  by  other  companies  so  as  to  be  pre- 
pared to  meet  any  comparisons  he  may  offer;  and 
then  he  must  be  persuaded  to  sign  the  application 
and  pay  the  premium.  But  this  is  not  all.  If  your 
work  on  this  case  is  to  be  effective  and  a  source  of 
future  assistance  to  you,  every  step  must  have  been 
taken  with  such  care  that  your  new  policy-holder 
will,  from  the  date  of  the  delivery  of  his  contract, 
become  your  ardent  supporter  and  an  enthusiastic 
advocate  of  your  company.  This  is  familiar  history 
to  you  all,  but  I  have  rehearsed  it  in  order  to  indi- 
cate the  varied  demands  which  are  made  upon  you 
in  your  work.  Intelligence,  knowledge  of  your  com- 
pany and  of  all  others,  perfect  familiarity  with  the 
policy  you  are  selling,  tact  at  all  times,  absolute 
truthfulness  so  that  the  future  may  be  to  your 


THE  LIFE  UNDERWRITER  17 

client  the  mere  unfolding  of  your  predictions,  deci- 
sion and  courage  at  critical  moments  to  enforce 
your  points  and  demand  recognition,  pride  in  your 
calling  and  pride  in  your  company,  these  are  essen- 
tials, and  it  takes  a  well-equipped  man  to  meet 
such  requirements. 

It  will  be  worth  your  while  to  examine  carefully 
yourself  and  every  man  engaged  with  you  in  your 
work  and  see  whether  these  qualities  exist  in  their 
proper  proportion.  These  are  the  fundamental 
elements,  and  they  may  be  included  in  the  broad 
terms  "intelligence  and  honesty";  intelligence 
which  increases  day  by  day,  year  by  year,  until 
you  become  a  perfect  encyclopaedia  of  knowledge 
of  men  and  of  insurance  affairs;  honesty  of  the 
good  old-fashioned  sort;  not  mere  technical  hon- 
esty, which  in  spirit  is  frequently  as  false  as  bare- 
faced fraud,  but  open,  candid,  honorable,  and  just 
dealing  with  all  men  with  whom  you  come  in  contact. 

I  have  spoken  incidentally  of  the  complexity  of 
the  life  insurance  business  as  at  present  conducted, 
and  herein  lies  the  great  power  for  good  or  evil 
which  is  vested  in  you  as  the  expounders  of  the 
contracts  you  sell.  The  modern  policy  of  insurance, 
with  its  options  and  guaranties,  with  its  many  so- 
called  "features,"  offers  to  the  unscrupulous  every 
opportunity  for  misrepresentation  or  partial  con- 
cealment of  fact,  as  it  is  well  known  that  the  average 
insurer  takes  your  statements  as  final  and  closes 


18  ADDRESSES  AND  PAPERS 

the  transaction  on  that  basis.  If  through  ignorance 
or  dishonest  intent  the  agent  has  deceived  him,  the 
company  has  gained  a  dissatisfied  client  and  the 
insurance  world  at  large  has  made  an  enemy. 
Exaggeration  of  prospective  earnings,  reckless  esti- 
mating of  future  profits,  false  presentation  of  policy 
contracts  by  any  agent  in  the  business,  are  a  source 
of  incalculable  injury  to  your  guild  at  large.  Too 
much  stress  cannot  be  laid  upon  the  fact  that  your 
own  business  is  imperiled  by  every  irresponsible 
free-lance  who,  with  glib  tongue  and  ready  wit,  mis- 
leads and  misdirects  his  clients.  The  more  the  com- 
panies attempt  by  varied  contracts  of  insurance  to 
meet  every  conceivable  requirement  of  the  insuring 
public,  the  greater  will  be  the  power  and  responsi- 
bility vested  in  you,  and  the  greater  the  need  for 
the  suppression  of  all  that  is  false  in  the  presenta- 
tion of  these  policies.  This  is  a  matter  of  vital  im- 
portance to  the  companies,  to  you,  and  to  the  whole 
system  of  life  insurance.  Again  I  wish  to  remind 
you  that  this  is  a  practical  expression,  and  on  this 
basis  I  emphatically  reassert  that  for  any  lasting 
success  in  your  profession  these  qualities  of  intel- 
ligence and  honesty  are  essential.  Soberly  and 
thoughtfully  I  affirm  that  no  field  of  work  calls  for 
the  exercise  of  greater  singleness  of  purpose,  of 
loftier  aims,  of  higher  business  morality  than  the 
profession  which  your  association  represents. 
Your  president  has  courteously  offered  me  as 


THE  LIFE  UNDERWRITER  19 

much  time  as  is  needed  to  treat  this  subject  quite 
exhaustively,  but  I  have  no  intention  of  wearying 
you  by  attempting  to  touch  upon  all  points.  This 
might  divert  your  attention  from  the  main  issues, 
and,  in  view  of  your  long  and  varied  experience,  it 
would  be  fruitless  for  me  to  offer  suggestions  as  to 
the  specific  methods  which  should  be  applied  in  the 
prosecution  of  your  work.  You  know  better  than  I 
how  to  approach  your  clients.  I  have  attempted 
simply  to  outline,  in  a  general  way,  the  essential 
principles  underlying  life  underwriting,  and  I  cer- 
tainly believe  that  enormous  assistance  in  accom- 
plishing the  needed  reforms  can  be  rendered  by 
your  local  and  national  associations.  The  success- 
ful adoption  of  these  principles  depends  upon  the 
personnel  of  the  agency  force,  and  herein  lies  your 
power.  Membership  in  these  organizations  should 
give  the  hall-mark  of  sterling  merit.  It  is  not  an 
honor  to  be  lightly  bestowed  or  easily  retained.  On 
your  rolls  should  appear  only  the  names  of  those 
who,  by  earnest  endeavor  and  honest  work,  are 
putting  forth  their  best  efforts  to  purify  and  ele- 
vate your  calling.  In  your  ranks  there  should  be  no 
place  for  the  brilliant  but  unprincipled  writer  of 
insurance,  for  the  man  of  doubtful  honesty  or  easy 
virtue,  whose  sole  claim  for  consideration  rests  in 
the  number  of  unfortunates  who  have  surrendered 
to  his  wiles.  The  Committee  on  Discipline  and  the 
blackball  should  await  every  "twister,"  every  re- 


20  ADDRESSES  AND  PAPERS 

bater,  and  every  distorter  of  truth.  Organization 
is  of  no  avail  unless  every  unit  is  sound.  If  you 
allow,  in  your  Association,  any  element  which  has 
not  the  true  ring  of  honesty  and  uprightness,  all 
your  influence  will  gradually  be  dissipated  or  will 
become  an  active  power  for  evil. 

I  offer  no  apology  for  the  high  estimate  I  place 
upon  the  profession  of  the  life  underwriter  and  the 
enormous  responsibilities  which  I  believe  are  vested 
in  it.  The  goods  you  offer  are  a  boon  to  mankind; 
they  appeal  to  the  best  there  is  in  man;  they  are 
themselves  the  best.  None  but  the  best  of  men 
should  handle  them.  The  insuring  public  must 
have  confidence  in  you;  your  companies  must  rely 
upon  you;  you  are  trustees  in  a  well-nigh  holy  call- 
ing. The  highest  executive  of  your  company  may 
have  greater  power  than  you,  but  the  trust  imposed 
upon  him  in  guarding  the  interests  committed  to 
his  charge  is  no  more  sacred  than  the  responsibility 
placed  in  your  hands,  when  you  become  the  ex- 
pounder to  the  world  at  large  of  the  truths  of  life 
insurance. 

If  you  desire  to  increase  your  efficiency,  keep 
your  attention  fixed  on  that  which  is  required  of 
the  individual  —  intelligence  and  honesty;  courage 
and  belief  in  the  survival  of  that  which  is  good; 
strength  to  maintain  your  own  position  in  honor 
and  uprightness;  earnest  and  untiring  effort  toward 
the  uplifting  and  ennobling  of  your  profession. 


DIVIDENDS  IN  LIFE  INSURANCE  « 

Of  late  much  has  appeared  in  public  print  against 
the  system  of  "  deferred  dividends,"  now  so  much  in 
vogue.  I  believe  that  this  criticism  has  arisen 
largely  from  a  misapprehension  of  the  system,  and 
that  under  a  rigid  analysis  it  will  be  found  that  the 
method  of  application  is  at  fault  rather  than  the 
plan  itself. 

The  conditions  prevailing  in  this  country  are 
different  from  those  which  present  themselves  in 
older  communities,  and  the  demand  of  the  Ameri- 
can public  for  life  insurance  has  been  upon  some- 
what different  lines  than  in  Great  Britain  and  other 
localities  where  business  is  less  speculative.  The 
insuring  business  man  here,  knowing  his  needs,  has 
demanded  not  only  indemnity  in  case  of  death,  but 
a  contract  that  would  provide,  as  well,  endowment 
or  some  other  form  of  payment  in  the  future,  and, 
in  addition,  a  contract  of  insurance  which  would  in 
the  mean  time  be  valuable  as  collateral  for  use  in 
times  of  temporary  stress.  All  this  has  led  to  an 
amplification  of  the  policy  of  insurance  until  it  has 
come  to  include  paid-up  values,  extended  insurance 
values,  loan  values,   and  surrender  values  at  the 

1  Circular  sent  to  all  policy-holders  of  the  Home  Life  Insurance 
Company,  in  October,  1905. 


22  ADDRESSES  AND  PAPERS 

end  of  given  periods,  all  guaranteed.  These  liberal 
features  have  met  the  requirements  of  the  public 
so  well  that  American  life  insurance  has  grown  at  a 
phenomenal  pace.  Throughout  all  this  period  of 
growth  the  premium  rates  have  remained  about  the 
same  —  except  as  the  interest  basis  of  calculation 
has  been  lowered  —  from  the  time  when  the  policy 
was  a  simple  contract  to  pay  in  the  event  of  death 
with  absolute  forfeiture  in  the  event  of  lapse.  Such 
extreme  liberality  is  only  possible  if  the  business 
obtained  be  of  good  quality,  well  selected,  and  of  a 
character  to  renew  and  remain  in  force  in  a  reas- 
onable proportion,  for  it  must  be  remembered  that 
liberality  to  the  policy-holder  is  not  shown  alone 
by  the  size  of  the  dividends  paid,  —  a  position  too 
often  assumed  by  critics  of  the  system,  —  but  by 
the  general  treatment  accorded  to  the  policy-holder 
in  all  his  relations  to  his  company;  and  here  I 
desire  to  state,  parenthetically,  that  some  com- 
panies which  have  made  the  greatest  record  in 
point  of  dividends  paid  have  been  able  to  accom- 
plish this  by  reason  of  their  lack  of  liberality  in 
other  channels. 

Business  which  renews  is  essential  to  success,  and 
insurance  managers  have  devoted  much  thought  to 
the  formation  of  plans  to  accomplish  the  conserva- 
tion of  their  business.  If  liberal  surrenders  are 
given  in  case  of  withdrawal,  there  must  be  some 
offsetting  sacrifice  by  the  policy-holder  who  retires, 


DIVIDENDS  IN  LIFE  INSURANCE       23 

for  it  must  be  borne  in  mind  that  the  selection  in 
matter  of  withdrawals  is  always  against  the  com- 
pany, and  some  special  inducement  must  be  offered 
to  the  policy-holder  to  carry  out  in  full  his  part  of 
the  contract. 

Hence  the  deferred  dividend  plan  —  by  what- 
ever name  it  may  be  called.  This  is,  in  brief,  a  plan 
by  which  the  insured  elects,  at  the  time  he  takes 
out  his  policy,  —  and  this  must  be  remembered,  — 
to  allow  his  dividends  to  remain  with  the  company 
until  the  end  of  a  given  period,  and  to  forfeit  them 
in  the  event  of  withdrawal  or  death  during  that 
period.  He  voluntarily  chooses  this  plan;  it  is  not 
compulsory  for  him  to  take  it;  there  is  no  injustice 
in  it;  and  he  receives  additional  value  in  conse- 
quence of  making  the  choice.  Prom  the  standpoint 
of  the  company  the  plan  is  advantageous,  as  the 
forfeiture  of  dividends  acts  as  a  check  upon  with- 
drawals and  promotes  the  continuity  of  its  busi- 
ness. 

Up  to  this  point  my  remarks  have  been  general, 
and,  although  the  argument  is  most  brief,  yet  I 
believe  it  establishes  that  deferred  dividends  per  se 
are  not  in  any  sense  open  to  censure.  In  the  devel- 
opment of  the  system  and  in  the  method  of  distri- 
bution, however,  I  believe  much  may  be  fairly  said 
against  the  plan  as  ordinarily  practiced.  If  the 
applicant  agrees  when  he  takes  out  his  insurance  to 
postpone  until  the  end  of  the  period  (say  ten,  fif- 


U  ADDRESSES  AND  PAPERS 

teen,  or  twenty  years)  any  apportioning  of  his  share 
of  the  profits,  he  submits  himself  to  conditions 
which  may  prevail  at  that  future  date  and  to 
methods  of  distribution  which  are  not  pledged  in 
advance,  and  he  has  no  guaranty  as  to  what  treat- 
ment he  will  receive.  New  conditions  may  arise, 
new  methods  may  prevail,  which  no  man  can  pre- 
dict. Further,  no  matter  when  paid  or  allotted  upon 
any  policy,  the  dividends  are  the  result  of  each 
year's  business;  and,  if  no  accounting  is  made,  a 
constantly  growing  fund  is  in  the  hands  of  the  com- 
pany, which  need  not  under  the  terms  of  the  policy 
contract  be  divided  until  the  dividend  period  has 
expired. 

This  fund  is  called  "surplus,"  and  is  properly 
surplus  under  this  plan,  for  no  policy-holder  has 
any  legal  claim  to  participation  in  or  knowledge 
regarding  it  until  he  reaches  the  end  of  his  particu- 
lar dividend  period.  This  plan  is  open  to  serious 
criticism:  it  leaves  too  large  an  unassigned  fund  in 
the  hands  of  managers  and  offers  tremendous  temp- 
tation to  extravagant  and  lax  business  method  — 
in  fact,  it  is  my  personal  belief  that  many,  I  am 
almost  tempted  to  say  most,  of  the  abuses  in  our 
business  have  arisen  from  these  large  surplus  funds 
which  are  the  natural  and  necessary  consequence  of 
deferred  dividends  without  any  accounting  during 
the  dividend  period. 

From  the  time  when  the  "Home"  first  began  to 


DIVIDENDS  IN  LIFE  INSURANCE       25 

issue  these  deferred  dividend  policies,  its  managers 
recognized  this  peril,  and  felt  that,  if  the  final  actual 
payment  were  to  be  deferred  for  a  given  period,  the 
insured  was  at  least  entitled  to  have  his  share  in  the 
dividends  determined  year  by  year,  and  that  the 
final  apportionment  should  not  be  deferred  until 
the  end  of  the  period;  and  that,  if  this  were  done,  a 
liability  would  be  created  similar  to  the  reserves  on 
policies,  which  would  safeguard  this  fund  from  im- 
proper use. 

The  plan  of  this  company  is,  therefore,  to  allot 
the  dividend  on  deferred  dividend  policies  each 
year;  to  compute  what  that  sum  will  amount  to  at 
the  end  of  the  period  (payable  if  the  insured  is  living 
and  the  policy  in  force  at  the  time) ;  and  to  annu- 
ally enter  in  the  company's  statement  a  proper  lia- 
bility against  each  deferred  dividend  so  declared. 
This  total  liability  on  December  31, 1904,  amounted 
to  $1,290,036. 

Further,  it  was  felt  that  the  policy-holder  was 
entitled,  if  he  desired,  to  a  knowledge  of  the  growth 
of  these  profits,  and  consequently  this  information 
is  always  furnished  on  request.  Under  this  arrange- 
ment the  insured  is  year  by  year  made  intelligent 
as  to  his  contract;  he  is  not  kept  in  the  dark  until 
the  end  of  ten,  fifteen,  or  twenty  years;  he  is  not  a 
member  of  a  "blind  pool";  and  —  what  is  more 
important  —  the  company  is  bound  to  guard  the 
liability  against  these  deferred  dividends  as  reli- 


26  ADDRESSES  AND  PAPERS 

giously  as  it  does  the  reserves  on  its  policies.  In  a 
company  so  conducted,  surplus  is  really  surplus, 
and  publicity  is  an  accomplished  fact. 

Another  indirect  advantage  should  be  noted; 
that  is,  that,  as  the  policy-holder  is  posted  year  by 
year  regarding  the  growth  of  his  deferred  dividend 
accumulations,  the  necessity  for  the  use  of  "esti- 
mates" in  the  sale  of  deferred  dividend  policies  is 
eliminated.  The  ignorant,  and  in  many  cases  un- 
scrupulous, use  of  the  estimate  as  an  inducement 
to  the  public  to  insure,  has  been  one  of  the  particu- 
lar evils  of  the  deferred  dividend  system  as  gener- 
ally conducted. 


THE   PRESENT  LIFE  INSURANCE 
INVESTIGATION  AND  ITS  EFFECT  ■ 

It  is  not  my  custom  at  meetings  of  this  character 
to  confine  myself  to  a  prepared  formal  address,  as 
I  believe  that  the  occasion  often  suggests  new 
thoughts  which  may  be  followed  with  profit,  and 
certainly  with  greater  pleasure  to  the  patient  audi- 
tor than  a  dry,  unsympathetic  paper. 

It  was  intimated  to  me  that  this  is  to  be  a  more 
or  less  serious  affair,  and  that  I  am  here  for  the  pur- 
pose of  putting  new  courage  into  the  hearts  of  the 
gentlemen  of  this  organization.  If  that  be  the  case, 
I  know  that  it  can  best  be  accomplished  by  a  clear 
statement  of  facts,  briefly  presented,  and  if  I  were 
talking  without  notes,  my  enthusiasm  might  run 
away  with  my  judgment  and  consume  too  much  of 
your  time. 

I  come,  then,  as  a  war  correspondent  from  the 
actual  seat  of  trouble  to  tell  you  how  matters  stand 
at  the  storm  center.  Of  course,  our  thoughts  are  all 
centered  upon  the  "investigation"  now  being  con- 
ducted at  New  York.  Let  us  look  at  the  purpose 
of  this  investigation.  The  committee  was  appointed 
(I  am  quoting  from  the  notice  from  its  chairman, 

1  Address  delivered  at  a  banquet  of  the  Rochester  New  York  Life 
Underwriters'  Association,  November  27,  1905. 


28  ADDRESSES  AND  PAPERS 

dated  August  16)  for  the  purpose  of  "investigating 
and  examining  into  the  business  and  affairs  of  life 
insurance  companies  doing  business  in  the  State  of 
New  York;  with  reference  to  the  investments  of 
said  companies;  the  relation  of  the  officers  thereof 
to  such  investments;  the  relation  of  such  compan- 
ies to  subsidiary  corporations;  the  government  and 
control  of  said  companies;  the  contractual  relations 
of  said  companies  to  their  policy-holders;  the  cost 
of  life  insurance;  the  expenses  of  said  companies, 
and  any  other  phase  of  the  life  insurance  business 
deemed  by  the  committee  to  be  proper,  for  the  pur- 
pose of  drafting  and  reporting  to  the  next  session  of 
the  Legislature  such  a  revision  of  the  laws  regu- 
lating and  relating  to  life  insurance  in  this  State  as 
said  committee  may  deem  proper."  It  was  not  a 
committee  whose  object  was  to  examine  into  the 
affairs  of  the  various  companies  with  the  end  in 
view  of  criticizing  any  particular  company  or  class 
of  companies,  but  the  purpose  was  that  the  com- 
mittee should  post  itself  upon  prevailing  practices 
and  recommend  intelligently  changes  in  the  existing 
statutes. 

It  is  of  the  greatest  importance  to  bear  this  dis- 
tinction carefully  in  mind.  Another  precaution 
must  be  given  to  those  who  wish  to  form  a  fair  esti- 
mate of  the  work  of  the  committee,  —  that  is,  that 
the  actual  testimony  must  alone  be  considered,  and 
not  the  deductions  drawn  by  critics  and  writers,  in 


THE  PRESENT  INVESTIGATION         29 

the  press  and  out  of  the  press,  who,  from  partial 
knowledge  or  from  improper  motives,  have  dis- 
torted the  testimony  and  forced  false  conclusions 
upon  the  public. 

I  recognize  the  fact  that  in  this  gathering  all 
companies  are  represented  and  that  my  position  is  a 
most  delicate  one,  for  you  have  asked  me  to  speak 
of  prevailing  conditions  in  our  business,  and  I  pre- 
sume you  desire  me  to  do  so  without  fear  or  favor. 
I  do,  however,  wish  it  to  be  understood  that  I  am 
not  here  in  an  official  capacity,  and  that  in  the  opin- 
ions which  I  express  I  am  simply  giving  utterance 
to  my  own  personal  views,  for  which  I  alone  am  to 
be  held  responsible. 

First  of  all,  and  in  order  that  there  may  be  no 
misunderstanding  from  the  start,  I  wish  to  state 
without  reservation  that  there  has  not  yet  been 
produced  one  scintilla  of  evidence  to  shake  our 
faith  in  the  integral  soundness  of  life  insurance 
under  the  "old  line"  plan.  The  system  is  founded 
on  a  rock,  and  no  storm  which  we  can  see  can  ever 
successfully  assail  its  fundamental  principles.  The 
scientific  plan  of  the  system  is  theoretically  correct 
and  efficient  in  practice.  Put  this  down  as  the 
underlying  fact  upon  which  you  can  pin  your  faith, 
and  force  your  critic  to  confine  his  attack  to  the 
matters  which  are  really  under  fire.  If  I  can  firmly 
fix  this  in  your  minds,  we  shall  have  a  proper  point 
from  which  to  start,  and  you  will  have  a  sense  of  se- 


30  ADDRESSES  AND  PAPERS 

curity  in  your  position  which  is  both  justifiable  and 
necessary  if  you  are  to  do  proper  work. 

The  following  conclusions  are  forced  upon  us  by 
the  investigation.  Some  of  these  are  fundamental 
and  self-evident,  but  at  the  present  time  it  can  do 
no  harm  to  rehearse  them. 

The  idea  that  our  business  is  a  sacred  trust  must 
be  more  clearly  appreciated,  not  only  by  the  officers 
and  directors  at  the  home  office,  but  by  every  man 
in  the  field  as  well.  This  is  not  the  time  to  point  at 
the  other  man  and  examine  his  action.  The  ques- 
tion of  the  hour  is, "  Ami  faithful  to  the  trust  placed 
in  my  hands?"  Mr.  Roosevelt  recently  said: 
"There  are  men  who  do  not  divide  actions  merely 
into  those  that  are  honest  and  those  that  are  not, 
but  create  a  third  subdivision  —  that  of  law-hon- 
esty;  of  that  kind  of  honesty  which  consists  of  keep- 
ing clear  of  the  penitentiary."  It  is  time  for  us  to 
get  down  to  old-fashioned  principles  and  to  appre- 
ciate the  value  of  transparent  honesty.  Every  dol- 
lar which  passes  through  your  hands  or  mine  has 
upon  it  the  sacred  words  "in  trust,"  and  we  are 
accountable  for  its  wise  use  to  further  the  beneficent 
object  of  our  profession.  Every  risk  you  solicit  and 
every  risk  I  accept  must  be  scrutinized  and  passed 
upon  with  the  clear  conception  of  the  responsibility 
placed  in  our  hands.  Every  underhanded  misrepre- 
sentation, every  rebate  given,  every  suppression  of 
material  fact  is  an  insult  to  our  calling  and  a  breach 


THE  PRESENT  INVESTIGATION         31 

of  our  trust.  We  are  trustees  all  the  time  and  in 
every  branch  of  our  work.  If  so,  the  beneficiaries 
under  our  trust  are  entitled  to  full  knowledge  of 
what  is  being  done.  It  is  not  practicable  or  neces- 
sary to  furnish  statements  of tener  than  once  a  year, 
but  when  they  are  issued  they  should  state  the  real 
facts.  The  policy-holder  is  entitled  to  know  what  is 
being  done  with  his  funds.  Our  business  may  be 
complex  and  difficult  of  explanation  to  the  layman 
in  many  of  its  branches,  but  the  facts  can  always  be 
stated,  and  it  is  the  solemn  duty  of  life  insurance 
officials  to  render  their  published  statements  hon- 
estly and  fearlessly. 

The  importance  of  the  fiduciary  character  of  our 
business  cannot  be  exaggerated,  and  this  funda- 
mental principle  must  be  borne  in  mind  in  every 
branch  of  our  work.  Great  stress  has  been  placed 
upon  the  matter  of  dividends,  and  in  many  minds 
the  size  of  the  dividend  is  the  standard  by  which  the 
companies  are  to  be  measured.  This  seems  at  first 
glance  plausible,  but  is  most  misleading.  The  mere 
cost  of  the  insurance  to  the  public  should  not  be 
considered  by  itself  alone,  unless  in  forming  our 
estimate  of  relative  merit  we  also  take  into  account 
the  liberality  offered  to  the  insured  in  all  his  rela- 
tions to  the  company.  The  American  public  has 
demanded  from  us  —  and,  I  believe,  properly  — 
insurance  which  would  not  only  insure  the  life,  but 
which  would  also  be  a  ready  asset  when  the  neces- 


32  ADDRESSES  AND  PAPERS 

sity  of  mere  life  insurance  had  disappeared;  further, 
it  insisted  upon  having  a  contract  available  as  col- 
lateral in  time  of  financial  stress,  and  a  policy  which 
would,  if  required,  carry  itself,  at  least  in  part,  by 
premium  loans.  Therefore  we  have  seen  the  grad- 
ual introduction  of  all  sorts  of  liberal  features 
which  give  the  modern  policy  an  adaptability  to  all 
future  contingencies.  In  the  investigation  it  seems 
to  me  that  sufficient  stress  has  not  been  laid  upon 
this  growth  in  liberality.  Dividends  have  de- 
creased, we  all  admit  that,  but  the  cause  is  not  to 
be  found  alone  in  decreased  earnings  on  capital. 
Do  not  forget  that  during  the  last  twenty  years  the 
gross  premiums  have  remained  the  same  except  for 
the  increase  under  the  new  rate  of  interest  used, 
and  then  compare  the  present  contract  of  insurance 
with  that  of  1885.  You  will  then  see  why  "  miscel- 
laneous profits"  have  dwindled,  and  discover  one 
great  cause  for  diminished  dividends.  The  policy- 
holder has  received  his  value,  but  in  a  different 
form. 

I  hesitate  to  touch  upon  deferred  dividends; 
they  are  the  object  of  attack  on  every  side.  My 
personal  convictions  are  strong  on  the  subject,  but 
at  variance  with  those  of  many  of  the  brightest 
minds  in  our  business.  I  believe  in  deferred  divi- 
dends as  giving  an  extra  incentive  to  the  insured  to 
perpetuate  his  insurance  and  as  furnishing  a  means 
of  saving  for  the  future,  but  I  do  not  believe  in  the 


THE  PRESENT  INVESTIGATION         33 

method  adopted  by  most  companies  in  this  connec- 
tion. I  feel  that  every  participating  policy  should 
each  year  share  in  the  profits;  that  its  particular 
share,  whatever  it  may  be,  should  be  set  aside  an- 
nually upon  each  policy,  to  be  paid,  as  the  policies 
may  provide,  either  every  year  or  used  as  the  basis 
for  determining  the  amount  to  be  paid  at  the  end 
of  the  deferred  dividend  period  if  the  policy  be  then 
in  force.  I  believe  that  every  deferred  dividend 
policy-holder  is  entitled  to  know  at  any  time  how 
that  fund  is  increasing  and  how  his  individual  ac- 
count stands;  and,  above  all,  I  believe  that  there 
should  be  maintained  against  these  deferred  divi- 
dends, individually  and  collectively,  an  absolute  or 
contract  liability  as  sacred  as  the  legal  reserve  upon 
our  policy  contracts.  I  know  this  is  not  a  popular 
idea.  But  why  deceive  ourselves  and  the  public  by 
a  large  surplus  account  which  is  not  surplus  for  the 
benefit  of  all  policy-holders,  but  in  part  a  fund 
which  must  be  distributed  year  by  year  as  these 
deferred  dividend  periods  mature?  Is  it  not  natural 
that  the  public  should  inquire,  "What  is  that  sur- 
plus for?"  Why  not  meet  the  issue  year  by  year 
and  annually  admit  the  growing  liability?  Misuse 
of  terms  in  business  often  deceives  the  wisest  men, 
and  economy  is  not  apt  to  be  the  order  of  the  day 
when  an  individual,  a  nation,  or  a  corporation  is 
carrying  a  large  unassigned  surplus  account,  —  in 
fact,  I  am  convinced  that  many  extravagances  in 


34  ADDRESSES  AND  PAPERS 

our  business  have  crept  in  imperceptibly  through 
a  misapprehension  of  what  this  so-called  "surplus" 
really  was  and  to  whom  it  rightfully  would  belong 
in  the  future. 

This  brings  me  to  the  general  question  of  expense. 
I  know  of  no  hard-and-fast  rule  which  may  be 
safely  laid  down  upon  this  subject.  The  conditions 
and  requirements  of  each  company  are  different; 
they  even  vary  in  the  same  company  in  different 
localities.  We  can  only  affirm  general  principles. 
The  president,  the  officers,  the  agents,  all  employees 
of  life  insurance  companies  are  entitled  to  full  and 
just  compensation  for  their  labors.  Here  again  we 
must  revert  to  the  fiduciary  character  of  our  busi- 
ness. There  is  no  place  for  waste;  there  is  no  room 
for  extravagance;  there  must  be  value  given  for 
value  received.  I  do  not  begrudge  one  dollar  of  ex- 
pense which  brings  in  its  proportion  of  result  for  the 
good  of  the  company  (that  is,  the  policy-holder) , 
but  we  must  rid  ourselves  of  every  man,  be  his  sta- 
tion high  or  low,  who  is  simply  using  the  collective 
funds  of  millions  of  saving  people  for  his  own  better- 
ment without  giving  a  full  and  honest  equivalent  to 
the  glorious  cause  of  life  insurance.  This  applies 
not  only  to  the  officers  and  office  staff,  but  with 
equal  directness  to  every  man  in  the  field.  In  this 
connection  I  have  not  time  to  touch  upon  the  mat- 
ter of  special  expense. 

Investments.  This  is  too  broad  a  subject  to  ad- 


THE  PRESENT  INVESTIGATION         35 

mit  of  a  full  discussion  here.  No  drastic  legislation 
can  profitably  be  applied  to  this  subject.  If  the 
best  results  are  to  be  obtained  for  the  policy- 
holders there  must  be  great  latitude  allowed,  but  the 
finance  committees  and  the  directors  must  be  im- 
pressed with  the  seriousness  of  the  responsibility  of 
selection  placed  upon  them.  They  are  trustees,  and 
they  should  never  be  allowed  to  lose  sight  of  that 
fact.  I  believe  that  the  public  at  large  has  drawn 
many  false  conclusions  from  the  recent  testimony 
on  this  subject,  but  there  is  much  that  needs  cor- 
rection. Public  opinion  alone  can  check  the  evils, 
and  close  scrutiny  of  the  investments  is  a  constant 
necessity.  The  policy-holder  is  entitled  every  year 
to  a  full  and  complete  list  of  all  investments. 

These  are  a  few  of  the  thoughts  which  have  been 
brought  into  new  prominence  by  the  "investiga- 
tion." The  question  which  is  of  the  greatest  mo- 
ment to  us  is,  "What  effect  will  all  this  agitation 
have  upon  the  future  of  life  insurance  ?"  In 
answer  to  this  question  you  will  not  receive  from 
me  any  word  of  discouragement  or  apprehension. 
There  may  be  some  dead  limbs  upon  the  old  tree, 
but  if  so,  we  must  lop  them  off.  The  heart  of  the 
oak  is  as  sound  as  ever,  and  its  grand  old  roots  are 
embedded  deep  in  the  soil  of  everlasting  truth. 
When  this  present  crisis  is  over,  and  when  we  see 
more  clearly,  as  we  must,  the  evils  which  have 
existed,  we  shall  find  the  public  more  intelligent 


36  ADDRESSES  AND  PAPERS 

and  discriminating,  the  companies  more  careful, 
and  the  idea  of  the  sacred  trust  of  life  insurance 
more  prominent  in  the  minds  of  all.  Reforms  must 
come  from  within,  and  the  public  looks  to  us,  the 
active  men  of  the  profession,  to  eradicate  all  that  is 
bad  wherever  it  may  be  found.  We  can  accom- 
plish this  task  more  successfully  and  more  quickly 
than  any  body  of  lawmakers,  and  the  public  has  a 
right  to  expect  us  to  do  it.  Every  one  of  you  has  his 
share  of  responsibility  at  the  present  time.  Before 
you  is  your  grandest  opportunity,  and  these  times 
of  stress  should  only  make  your  enthusiasm  greater 
and  your  loyalty  more  unbounded. 

Let  me  close  by  simply  quoting  the  inspiring 
words  of  Mr.  Roosevelt  upon  the  industrial  life  of 
our  nation.  The  questions  which  confront  us  are 
the  same  as  those  which  the  nation  has  to  meet :  — 

The  problems  which  we  of  America  have  to  face  to- 
day are  very  serious,  but  we  will  do  well  to  remember 
that  after  all  they  are  only  part  of  the  price  which  we 
have  to  pay  for  the  triumphs  which  we  have  won,  for 
the  high  position  to  which  we  have  attained.  If  we  were 
a  backward  and  stationary  country  we  would  not  have 
to  face  these  problems  at  all;  but  I  think  that  most  of 
us  are  agreed  that  to  be  backward  and  stationary  would 
be  altogether  too  heavy  a  price  to  pay  for  the  avoidance 
of  the  problems  in  question. 

There  are  many  excellent  people  who  shake  their 
heads  over  the  difficulties  that  as  a  nation  we  now  have 
to  face;  but  their  melancholy  is  not  warranted  save  in  a 


THE  PRESENT  INVESTIGATION        37 

very  partial  degree,  for  most  of  the  things  of  which  they 
complain  are  the  inevitable  accompaniments  of  the 
growth  and  greatness  of  which  we  are  proud. 

Now,  I  do  not  wish  to  be  misunderstood.  I  do  not  for 
one  moment  mean  to  say  that  there  are  not  many  and 
serious  evils  with  which  we  have  to  grapple,  or  that  there 
are  not  unhealthy  signs  in  the  body,  social  and  politic; 
but  I  do  mean  to  say  that  while  we  must  not  show  a  fool- 
ish optimism,  we  must  no  less  beware  of  a  mere  blind 
pessimism.  There  is  every  reason  why  we  should  be  vigi- 
lant in  searching  out  what  is  wrong  and  unflinchingly 
resolute  in  striving  to  remedy  it.  But  at  the  same  time 
we  must  not  blind  ourselves  to  what  has  been  accom- 
plished for  good,  and  above  all,  we  must  not  lose  our 
heads  and  become  either  hysterical  or  rancorous  in 
grappling  with  what  is  bad. 


THE  INSURANCE  INVESTIGATION1 

[Examination  by  Mr.  Hughes.] 

Q.  Have  you  been  interested  in  any  syndicate, 
the  managers  of  which  have  sold  securities  to  the 
company?  A.  Not  at  all. 

Q.  Have  any  other  of  the  officers  of  the  com- 
pany? A.  No. 

Q.  You  don't  have  any  accounts  in  the  name  of 
officers  for  disbursements  that  you  are  not  desirous 
of  having  appear  on  your  books?  A.  Not  at  all. 

Q.  You  never  have  had?  A.  Never  have  had. 

Q.  You  have  prepared  a  statement  of  the 
amounts  disbursed  by  your  company  for  legal 
expenses  from  1896  to  1905.  Is  this  a  complete 
statement  [showing  statement  to  witness]?  A. 
That  is  a  complete  statement,  yes,  sir. 

Q.  Are  there  any  amounts  which  have  been  dis- 
bursed for  legal  expenses  or  paid  for  attorneys  that 
do  not  appear  in  that  statement?  A.  None  that  I 
know  of. 

Q.  Are  there  any  amounts  which  have  been  dis- 
bursed to  lawyers  or  for  legal  expenses  that  do  not 

1  Extracts  from  testimony  of  George  E.  Ide,  president  of  the  Home 
Life  Insurance  Company  of  New  York,  December  8  and  11,  1905. 
Taken  from  stenographer's  minutes,  Report  of  Proceedings  of  the  Joint 
Committee  of  the  Legislature  of  the  State  of  New  York  for  the  Inves- 
tigation of  Life  Insurance. 


TESTIMONY  39 

appear  under  the  head  of  legal  expenses  on  your 
books  of  account?  A.  Not  to  my  knowledge. 

Q.  Has  the  company  itself  been  interested  in  any 
syndicate?  A.  Not  in  any  way. 

Q.  Have  you  any  contingent  fund  placed  at  your 
disposal  for  any  special  purpose?  A.  None  what- 
ever. 

Q.  Have  you  had  at  any  time?  A.  No,  sir. 

Q.  Nor  has  any  officer  of  your  company  had? 
A.  Not  to  my  knowledge. 

Q.  Are  there  any  funds,  any  corporate  funds 
kept  in  the  names  of  individuals?  A.  You  mean  in 
banks? 

Q.  Yes,  or  trust  companies?  A.  No,  not  at  all. 

Q.  Are  there  any  accounts  which  relate  to  com- 
pany matters  which  do  not  appear  on  the  com- 
pany's books  but  are  handled  by  individual  officers 
or  others?  A.  None  at  all. 

Q.  The  legal  expenses  do  not  appear  to  be  total- 
ized. If  you  can  give  the  totals  yourself  I  would  be 
glad  to  have  you  do  so. 

1899 $8,270 

1900 8,834 

1901 3,910 

1902 12,490 

1903 8,579 

1904 4,743 

The  Witness:  I  think  I  have  them  here,  and 
that  these  will  agree  with  those  figures. 


40  ADDRESSES  AND  PAPERS 

Q.  Does  that  include  the  compensation  for  gen- 
eral counsel?  A.  That  includes  compensation  for 
general  counsel. 

Q.  And  that  includes  taking  care  of  all  lawsuits 
of  your  company?  A.  Yes. 

Q.  Have  you  expended  any  moneys  in  connection 
with  matters  of  legislation?  A.  None  at  all. 

Q.  In  the  States?  A.  No. 

Q.  In  how  many  States  do  you  manage  business? 
A.  I  should  think  we  were  in  thirty  States. 

Q.  Are  you  not  constantly  exposed  to  the  terrors 
of  strike  legislation?  A  There  is  a  good  deal  said 
about  it. 

Q.  Well,  haven't  you  felt  that  the  interest  of 
your  policy-holders  required  the  expenditure  of 
money  to  defeat  obnoxious  measures?  A.  I  have 
never  been  called  upon  to  do  it ;  I  have  never  done  it. 

Q.  Have  you  ever  paid  any  moneys  to  Andrew 
Hamilton?  A.  No. 

Q.  You  or  your  company?  A.  No. 

Q.  Or  to  A.  C.  Fields?  A.  No. 

Q.  Well,  do  you  make  any  campaign  contribu- 
tions? A.  We  never  have  made  any  campaign 
contributions,  as  I  mentioned  in  my  schedule,  ex- 
cept in  1896,  we  expended  a  thousand  dollars  in  the 
distribution  and  purchase  of  literature  on  the  gold 
question. 

Q.  How  did  you  expend  that  money?  A.  That 
was  done  by  paying  the  National  Protective  Tariff 


TESTIMONY  41 

Association,  who  had  the  literature  and  sold  it  and 
distributed  it. 

Q.  You  have  never  made  any  contributions  to 
any  committee  representing  any  party?  A.  No,  sir. 

Q.  For  political  purposes?  A.  None  at  all. 

Q.  Or  to  any  one  connected  with  any  political 
organization?  A.  No. 

Q.  For  either  local,  state,  or  national  or  in  any 
jurisdiction?  A.  No,  none  of  those  departments. 

Q.  What  class  of  insurance  does  your  company 
write?  A.  We  write  all  forms  of  old  line  insurance. 

Q.  Do  you  write  deferred  dividend  policies?  A. 
Yes,  we  write  deferred  dividend  policies. 

Q.  What  portion  of  your  business  is  deferred 
dividend  business?  A.  I  should  think  seventy-five 
per  cent  of  our  outstanding  business  is  deferred 
dividend  business. 

Q.  Is  that  a  correct  statement?  A.  Yes. 

Mr.  Hughes:  I  will  read  that  on  the  record. 

Mr.  Hughes:  Proportion  of  policies  on  annual 
dividend  plan,  eleven  per  cent;  proportion  on 
deferred  dividend  plan,  seventy-five  per  cent;  pro- 
portion on  the  non-participating  plan,  fourteen  per 
cent. 

Q.  In  making  your  investments  did  you  deal 
with  any  particular  commission  house?  A.  We 
used  the  market  in  general. 


42  ADDRESSES  AND  PAPERS 

Q.  Do  you  enter  into  any  joint  account  transac- 
tion where  you  give  to  any  broker  or  banker  a  share 
of  the  profits?  A.  None  at  all. 

Q.  Does  any  officer  of  your  company  receive  any 
commission  upon  the  purchase  or  sale  of  securities? 
A.  No. 

Q.  What  amount  of  cash  do  you  carry  as  a  rule 
as  bank  balances?  A.  We  have  a  general  rule  in  the 
finance  committee  that  when  the  total  of  the  cash 
balances,  including  our  balances  all  over  the  coun- 
try, amount  to  $250,000  or  $300,000  we  begin  to 
look  for  investments.  At  times  the  balances  are 
necessarily  below  that  figure,  and  sometimes  they 
are  slightly  above  it;  but  we  try  never  to  carry 
more  than  $250,000  to  $300,000  in  banks. 

Q.  That  includes  your  balances  in  accounts  dis- 
tributed throughout  the  country?  A.  All  through 
the  country. 

Q.  What  are  your  accounts  in  the  city  of  New 
York?  A.  They  would  run  not  over  —  well,  they 
would  run  from  $100,000  to  $200,000.  In  other 
words,  the  out-of-town  balances  would  average,  I 
should  think,  from  $175,000  to  $200,000. 

Q.  What  is  the  machinery  you  adopt  in  reference 
to  investments;  does  the  matter  come  before  the 
finance  committee?  A.  The  finance  committee  of 
the  company  meets  once  a  week  and  all  suggestions 
for  investments  are  made  to  that  committee.  The 


TESTIMONY  43 

stocks  or  bonds  or  mortgages  are  then  taken  on  the 
recommendation  of  that  committee,  and  their  ac- 
tion is  reported  in  detail  to  the  board  once  a  quarter 
for  confirmation. 

Q.  What  proportion  of  your  investments  are  in 
bonds  and  mortgages?  A.  Taking  the  statement  of 
last  December,  the  investment  in  bond  and  mort- 
gage was  $4,735,000  out  of  total  admitted  assets  of 
$16,600,000. 

Q.  Has  any  officer  of  your  company  received  any 
commission  upon  loans  secured  by  mortgage?  A. 
No. 

Q.  How  are  applications  for  loans  upon  bond 
and  mortgage  handled  by  your  company?  A. 
Applications  come  to  the  finance  committee  and 
are  passed  upon  by  them  at  their  weekly  meeting. 

Q.  Are  the  executive  officers  of  your  company 
privileged  to  pay  out  money  in  advance  of  action 
by  the  finance  committee  upon  executive  order? 
A.  No,  only  in  the  ordinary  transaction  of  business. 

Q.  You  mean  in  the  ordinary  routine  of  business 
in  the  payment  of  claims?  A.  Yes,  but  not  in  any- 
thing of  an  investment  character. 

Q.  Nor  in  connection  with  any  payment  outside 
of  the  regular  routine?  A.  No. 

Q.  That  practice  does  not  obtain  with  your  com- 
pany at  all?  A.  No. 


44  ADDRESSES  AND  PAPERS 

By  a  Member  of  the  Committee: 

Q.  Can  you  tell  what  the  average  rate  of  inter- 
est on  bond  and  mortgage  investments  is?  A.  It 
would  average  four  and  a  half  per  cent;  I  should 
think  four  and  a  quarter  to  four  and  a  half.  We 
make  very  few  at  four. 

Q.  Could  you  loan  more  of  your  money  on  bond 
and  mortgage  if  you  wanted  to  in  this  State?  A.  I 
think  so. 

Q.  So  that  the  division  between  what  you  do 
loan  and  the  other  investment  is  mainly  on  your 
judgment  of  what  you  think  best?  A.  It  is  a 
matter  of  judgment,  yes.  I  don't  believe  in  short 
investments  for  life  insurance  companies,  if  they 
can  be  avoided. 

By  Mr.  Hughes:  What  is  that?  A.  Our  calcu- 
lations being  made  in  premiums  at  a  stated  rate  of 
interest,  which  cannot  be  changed  at  our  will,  I 
think  it  is  very  wise  for  the  insurance  companies  to 
keep  its  funds  as  largely  as  possible  invested  in 
securities  which  furnish  a  permanent  investment, 
or  a  very  long  investment  at  a  fixed  rate  of  interest. 
For  instance,  a  good  railroad  bond  commanding 
four  and  a  half  per  cent  net,  or  four  and  a  quarter 
per  cent  net  to  the  company,  would,  in  my  mind  — 
and  running  ninety-nine  years  —  be  very  much 
more  advantageous  than  a  mortgage  running  out 


TESTIMONY  45 

in  three  years,  which  would  have  to  be  replaced, 
possibly  at  a  lower  rate  of  interest. 

Q.  And  better  than  a  demand  loan?  A.  Very 
much  better. 

Q.  That  is  what  you  had  in  mind  when  you  said 
you  had  more  profitable  fields  for  investment?  A. 
Yes. 

Q.  Than  you  would  have  in  collateral  loans  of 
the  Wall  Street  type?  A.  Yes. 

By  a  Member  of  the  Committee: 

Q.  I  notice  that  the  surplus  of  your  company 
twenty  years  ago,  that  is,  at  the  end  of  1885,  as 
appears  from  the  Blue  Book,  was  $1,342,952,  and 
that  your  surplus  at  the  end  of  1904,  exclusive  of 
$228,211,  fluctuation  reserve  of  securities  carried  in 
liabilities,  amounted  to  $1,134,104.  I  note  that  in 
the  intervening  period  your  surplus  has  run  be- 
tween something  over  $1,100,000  to  about  $1,500,- 
000,  indicating  that  it  has  been  fairly  constant  for 
twenty  years.  Can  you  explain  that?  A.  Well,  I 
have  felt  that  the  surplus  was  ample  for  the  pur- 
poses of  the  business,  and  that  the  policy-holders 
were  entitled  to  the  profits  as  they  accrued,  as  far  as 
was  in  my  power  to  give  them  those  profits. 

Q.  So  that  the  explanation  is  that  you  have  dis- 
tributed additional  gains  to  policy-holders,  or 
credited  your  policy-holders  with  them,  and  car- 
ried them  as  liabilities  if  not  distributed?  A.  Yes. 


46  ADDRESSES  AND  PAPERS 

Q.  Your  surplus  that  you  have  thought  sufficient 
appears  to  be  somewhat  less  than  ten  per  cent  of 
your  assets?  A.  Yes. 

Q.  The  Blue  Book  gives  your  assets  at  the  end  of 
1885  at  $5,646,478,  and  at  the  end  of  1904,  $16,606,- 
229.  The  ratio  of  surplus  or  undistributed  profits 
is  much  less  at  present  than  it  was  in  prior  years? 
A.  Yes. 

Q.  Do  you  think  that  in  reserving  under  ten  per 
cent  for  contingencies  you  have  an  ample  reserve? 
A.  I  think  we  have,  in  view  of  our  system  in  other 
particulars. 

Q.  Well,  what  is  your  system  in  other  particu- 
lars which  enables  you  to  get  along  with  so  small  a 
percentage  held  for  contingencies?  A.  I  refer  to 
the  treatment  of*def erred  dividends. 

Q.  That  we  will  come  to  in  a  moment.  A.  But 
that  is  what  I  had  in  mind. 

Q.  In  effect,  if  you  set  apart  to  the  policy-hold- 
ers what  they  are  entitled  to  out  of  the  accumula- 
tions, you  think  that  you  can,  with  ordinary  pru- 
dence, safeguard  the  company  by  a  certain  con- 
tingency reserve  of  ten  per  cent  of  the  assets?  A. 
Yes. 

Q.  In  your  judgment,  would  that  apply  to  a 
company  of  more  assets  than  you  have,  that  is, 
would  that  percentage  obtain  if  the  assets  were 
very  much  larger  than  those  of  your  company?  A. 
Well,  I  should  want  to  have  a  very  intimate  knowl- 


TESTIMONY  47 

edge  of  the  character  of  the  assets  and  the  condition 
of  the  company. 

Q.  Well,  assuming  the  assets  were  of  the  same 
class?  A.  I  should  think  so. 

Q.  In  other  words,  assuming  conservatism  in 
investments,  and  that  the  assets  represented  first- 
class  securities,  then  you  think  that  a  reserve  for 
contingencies  of  ten  per  cent  is  sufficient?  A.  I 
should  think  so. 

Q.  Now,  you  have  referred  to  the  manner  in 
which  you  deal  with  deferred  dividends.  Now,  we 
have  already  noticed  that  a  very  large  proportion 
of  your  business  is  on  the  deferred  dividend  plan, 
so  that  your  company  is  not  an  annual  dividend 
company.  A.  In  a  sense,  no. 

Q.  You  do  an  annual  dividend  business?  A. 
Yes. 

Q.  But  only  about  eleven  per  cent  of  your  poli- 
cies are  upon  that  plan?  A.  Yes. 

Q.  Now,  your  charter  provides  in  article  7,  sec- 
tion 1,  that  the  board  of  directors  shall  cause  a 
statement  of  the  affairs  of  the  company  to  be  made 
annually,  which  shall  exhibit  the  amount  of  the 
surplus  or  net  profits  of  the  company  after  reserv- 
ing a  sum  sufficient  to  provide  for  all  its  liabilities. 
The  net  profits  when  ascertained  shall  be  appor- 
tioned to  the  holders  of  policies,  who  may  be  en- 
titled to  participate  in  the  profits  according  to  their 
respective  contributions.  A.  Yes,  sir. 


48  ADDRESSES  AND  PAPERS 

Q.  Is  that  provision  of  the  charter  carried  out  in 
practice?  A.  Yes. 

Q.  So  that  annually  you  do  have  a  distribution 
of  the  surplus  or  net  profits.  A.  Yes. 

Q.  Now,  do  you,  as  a  matter  of  fact,  appor- 
tion the  net  profits  to  your  participating  policy- 
holders who  have  deferred  dividend  policies?  A. 
Yes,  sir. 

Q.  I  will  be  glad  to  have  you  explain  fully  what 
the  practice  of  your  company  is  with  reference  to 
that.  A.  The  dividends  are  apportioned  annually 
on  every  participating  policy.  If  a  policy-holder  has 
an  annual  dividend  policy,  he  takes  his  dividends 
in  cash  or  uses  them  to  decrease  his  premium  pay- 
ments or  buys  with  them  additional  insurance.  On 
the  other  hand,  if  the  policy  is  a  deferred  dividend 
policy,  the  distribution  is  made  in  exactly  the 
same  way  on  that  policy  and  that  amount  is  taken 
and  accumulated  until  the  end  of  his  deferred  divi- 
dend period,  whatever  that  may  be.  The  present 
value  of  the  total  of  these  accumulations  is  taken 
as  a  liability  and  is  carried  by  the  company  as  a  lia- 
bility in  the  same  way  that  we  carry  reserves  on  a 
life  policy,  or  on  any  policy  of  insurance,  and  the 
reserve  last  year,  in  the  State  Report,  I  think, 
is  included  with  other  items,  but  amounted  to 
one  million  two  hundred  and  ninety  thousand 
dollars. 


TESTIMONY  49 

[After  introducing  and  filing  a  circular  sent  out 
to  policy-holders  by  the  witness,  the  examination 
continued.] 

Q.  How  long  is  it  that  this  practice  has  been  in 
operation?  A.  It  has  been  in  operation  since  1887 
or  1888  in  exactly  this  way. 

Q.  Well,  is  n't  it  apt  to  be  embarrassing  to  you 
to  carry  as  a  legal  obligation  the  present  value  of 
these  accumulations?  A.  It  has  made  it  rather 
difficult  at  times;  yes,  sir. 

Q.  What  has  been  a  difficulty  at  times?  A.  It 
has  rather  curtailed  us,  I  suppose,  in  the  procuring 
of  new  business. 

Q.  How  does  it  have  that  effect?  A.  Because  the 
accounting  is  to  be  made  actually  year  by  year. 

Q.  It  is  an  expose  of  results  to  this  time?  A.  An 
annual  expose. 

Q.  And  that  has  its  inconveniences  as  well  as  its 
merits?  A.  Very  frequently. 

Q.  Has  that  been  felt  as  an  effective  check  in  the 
operations  of  the  company?  A.  I  think  it  is  a  salu- 
tary check. 

Q.  In  what  way  has  it  proved  a  salutary  check? 
A.  I  think  it  leads  to  greater  care  in  the  selection  of 
business  and  more  conservatism. 

Q.  And  also  with  regard  to  your  investments? 
A.  Yes,  sir. 

Q.  You  started  in  the  circular  by  saying  that  the 
conditions  prevailing  in  this  country  are  different 


50  ADDRESSES  AND  PAPERS 

from  those  which  present  themselves  in  older  coun- 
tries, and  the  demand  of  the  American  public  for 
life  insurance  has  been  on  somewhat  different  lines 
than  in  Great  Britain  and  other  localities  where 
business  is  less  speculative.  Just  what  do  you  mean 
by  that?  A.  I  mean  that  in  any  new  country  the 
demand  for  capital  in  exploiting  enterprises  that  are 
more  or  less  speculative  places  a  man  in  a  position 
very  frequently  where  for  a  few  years  he  may  haz- 
ard all  that  he  has  in  these  enterprises,  and  he  finds 
it  necessary  to  cover  the  risk  of  his  life  during  that 
period  of  speculative  business,  and  the  American 
people  have  certainly  adopted  that  plan  of  putting 
all  of  their  energy  and  all  of  their  money  into  their 
enterprises,  protecting  themselves,  in  the  event  of 
death,  by  liberal  insurance. 

Q.  Well,  what  effect  has  that  upon  the  popular- 
ity of  certain  types  of  insurance?  A.  The  effect 
which  I  meant  to  hint  at  in  that  circular  was  that 
this  differs  from  the  ordinary  plain  insurance  which 
a  man  in  an  older  country  would  carry;  and  in  order 
to  meet  conditions  here,  we  have  got  to  provide  a 
form  of  insurance  that  will  adapt  itself  to  the  re- 
quirements of  the  man  in  coming  years.  It  may  be 
that  he  wants  to  keep  his  insurance;  his  circum- 
stances will  be  such  that  he  wants  to  keep  it  through 
the  future.  It  may  be  that  he  wants  to  surrender  it. 
It  may  be  that  he  wants  to  borrow  money  on  it  — 
all  these  conditions  ought  to  be  met  by  a  good  con- 


TESTIMONY  51 

tract,  so  that  the  American  life  insurance  policy  has 
become  the  most  varied  contract  that  has  been 
issued. 

Q.  Has  n't  that  variation  in  the  policies  offered 
by  American  companies  been  due  largely  to  the 
necessities  of  competition?  A.  Not  entirely. 

Q.  Has  n't  it  been  due  to  that  fact  to  some  ex- 
tent? A.  Yes,  to  some  extent. 

Q.  To  the  desire  to  present  something  a  little 
different  and  more  advantageous  than  what  an- 
other company  may  have  presented?  A.  Well,  I 
think  that  is  a  small  factor. 

Q.  Well,  is  there  any  real  necessity,  in  your  judg- 
ment, for  the  great  number  of  varieties  of  policies 
that  we  find  issued  by  the  companies?  A.  None  at 
all. 

Q.  Not  at  all?  A.  No. 

Q.  The  necessities  of  the  American  business  man 
who  desires  to  protect  himself  by  life  insurance 
during  his  most  productive  years  do  not  require 
such  an  excess  of  ingenuity  in  the  development  of 
insurance  schemes,  does  it?  A.  No,  sir;  I  simply  — 

Q.  How  do  you  account  for  the  varied  forms  we 
have?  A.  Well,  that  is  for  the  sake  of  sale,  un- 
doubtedly. That  is  what  I  meant  a  moment  ago. 

Q.  It  is  the  result  of  competition?  A.  I  think  we 
were  referring  to  different  matters. 

Q.  Yes?  A.  I  was  referring  to  the  introduction 
of  the  surrender  value,  the  loan  feature,  and  the 


52  ADDRESSES  AND  PAPERS 

fundamental  features  of  that  sort,  not  to  the  varied 
contracts. 

Q.  One  of  my  objects  was  to  eliminate  special 
forms  which  were  introduced  to  makes  sales  of 
policies  —  A.  Yes,  sir. 

Q.  And  to  get  down  to  these  variations  in 
American  contracts  which  were  incident  to  the 
experience  that  you  have  alluded  to?  A.  Yes,  sir. 

Q.  Now,  these  features  you  have  in  mind  are 
surrender  values,  loan  values,  and  also  generally  the 
features  that  pertain  to  investment  insurance?  A. 
Yes. 

Q.  What  has  been  the  American  experience  with 
regard  to  premium  rates?  Have  they  increased  or 
diminished?  A.  There  has  been  an  increase,  due  to 
the  change  of  the  interest  rate  in  making  calcula- 
tions, but  otherwise  there  has  been  no  material 
change. 

Q.  Now,  what  have  been  the  motives  which  have 
led  the  companies  to  favor  the  deferred  dividend 
plan  of  insurance?  A.  Well,  I  can  only  speak  for 
my  own  company;  the  great  reason  why  I  preferred 
the  deferred  dividend  policy  for  our  company  is  that 
there  is  a  strong  element  in  that  policy  for  its  con- 
tinuity. What  we  all  are  after  is  to  so  curtail,  as  far 
as  possible,  the  tremendous  lapses  which  there  are 
in  American  business;  and  the  fact  that  we  have 
this  growing  fund,  and  that  we  can  tell  a  man  how 
his  individual  fund  is  increasing,  gives  to  us  not  only 


TESTIMONY  53 

an  argument  to  keep  him  in,  but  it  makes  it  possible 
for  us  to  use  greater  features  of  liberality  in  these 
deferred  dividend  policies. 

Q.  You  mean  that  the  danger  of  loss  to  the  pol- 
icy-holder of  his  accumulation  in  case  of  withdrawal 
before  the  expiration  of  the  term,  comes  as  an  in- 
centive to  his  continuance?  A.  Very  frequently. 

Q.  Do  you  find  that  the  rate  of  lapse  is  less  in  the 
deferred  dividend  policy  than  in  the  annual  divi- 
dend policy?  A.  We  have  so  little  data  —  I  would 
like  to  have  more  —  for  finding  that  out.  I  can 
only  speak  from  my  general  opinion,  because,  you 
see,  we  have  a  very  small  volume  of  annual  dividend 
policies,  not  enough  to  form  a  class  and  a  great  deal 
of  that  is  old  business  which  has  been  on  our  books 
for  a  great  many  years. 

Q.  Outside  of  the  ordinary  method  of  handling 
deferred  dividends,  in  their  accountings,  there  are 
other  advantages  to  the  company?  A.  I  think  there 
are. 

Q.  Advantages  of  the  uncontrolled  handling  of 
large  accumulations  without  a  legal  obligation  to 
account  for  any  particular  amount.  That  has  been 
recognized  by  you,  has  it  not?  A.  That  is  my  per- 
sonal feeling. 

Q.  Now,  I  desire  to  read  what  you  say  in  your 
pamphlet,  upon  the  subject  of  the  deferred  divi- 
dend system,  as  follows: — 

After  stating  the  advantage  to  the  company  be- 


54  ADDRESESS  AND   PAPERS 

cause  the  forfeiture  of  dividends  acts  as  a  check 
upon  withdrawals  and  promotes  continuity  as  well, 
you  say:  — 

Up  to  this  point  my  remarks  have  been  general,  and, 
although  the  argument  is  most  brief,  yet  I  believe  it 
established  that  deferred  dividends  per  se  are  not  in 
any  sense  open  to  censure.  In  the  development  of  the 
system  and  in  the  method  of  distribution,  however,  I 
believe  much  may  be  fairly  said  against  the  plan  as 
ordinarily  practiced.  If  the  applicant  agrees  when  he 
takes  out  his  insurance  to  postpone  until  the  end  of  the 
period  (say  ten,  fifteen,  or  twenty  years)  any  apportion- 
ing of  his  share  of  profits,  he  submits  himself  to  condi- 
tions which  may  prevail  at  the  future  date  and  the 
methods  of  distribution,  which  are  not  pledged  in  ad- 
vance, and  he  has  no  guaranty  as  to  what  treatment  he 
will  receive.  New  conditions  may  arise,  new  methods 
may  prevail,  which  no  man  can  predict.  Further,  no 
matter  when  paid  or  allotted  upon  any  policy,  the  divi- 
dends are  the  results  of  each  year's  business;  and,  if  no 
accounting  is  made,  a  constantly  growing  fund  is  in  the 
hands  of  the  company,  which  need  not,  under  the  terms 
of  the  policy  contract,  be  divided  until  the  dividend 
period  has  expired. 

This  fund  is  called  "Surplus,"  and  is  properly  surplus 
under  this  plan,  for  no  policy-holder  has  any  legal  claim 
to  participation  in  or  knowledge  regarding  it,  until  he 
reaches  the  end  of  his  particular  dividend  period.  This 
plan  is  open  to  serious  criticism;  it  leaves  too  large  an 
unassigned  fund  in  the  hands  of  the  managers,  and 
offers  tremendous  temptation  to  extravagant  and  lax 
business  method.  In  fact,  it  is  my  personal  belief  that 
many,  I  am  almost  tempted  to  say  most,  of  the  abuses 


TESTIMONY  55 

in  our  business  have  arisen  from  these  large  surplus 
funds,  which  are  the  natural  and  necessary  consequences 
of  deferred  dividends  without  any  accounting  during  the 
dividend  period. 

Q.  Now,  in  your  judgment,  you  have  met  that 
difficulty  by  the  provision  for  annual  accounting? 
A.  Yes,  sir. 

Q.  But  that  still  leaves  open  the  handling  of 
funds  and  the  carrying  of  them,  invested,  during 
the  period  which  must  elapse  before  the  time  of 
distribution?  A.  Yes,  sir,  but  under  the  other  plan, 
having  a  surplus,  you  might,  under  a  contingency 
arising,  when  you  wanted  to  increase  your  busi- 
ness, use  it  temporarily  with  almost  the  certainty 
that  it  would  come  back  to  you  after  three  or  four 
years  from  the  creation  of  new  business,  and  you 
could  figure  on  its  coming  back  again  to  you  before 
the  end  of  that  man's  particular  period. 

Q.  Yes?  A.  Whereas,  under  our  plan,  it  would 
immediately  show  that  I  was  cutting  into  my  sur- 
plus, and  it  would  be  evident  to  every  one  what  I 
was  doing. 

Q.  In  other  words,  when  you  handle  a  large 
accumulation  without  any  accounting,  or  without 
existence  of  any  legal  obligation  for  the  accounting 
annually,  you  could  draw  whatever  you  want  to 
extend  your  business,  and  that  means  that  you 
could  draw  upon  that  fund?  A.  Yes,  sir. 

Q.  You  could,  of  course,  take  whatever  moneys 


50  ADDRESSES  AND  PAPERS 

you  had,  but  what  would  be  the  consequences  at 
the  end  of  the  year?  A.  I  might  have  no  surplus  at 
all. 

Q.  The  safety  of  your  dividend  liability  fund  is 
dependent  upon  the  care  and  conservatism  of  the 
management  of  your  company?  A.  The  same  as 
the  policy  reserve. 


THE  INSURANCE   INVESTIGATION  AND 

THE  HOME  LIFE  INSURANCE  COMPANY 

OF  NEW  YORK1 

[Brooklyn  Daily  Eagle,  December  11,  1905] 

The  Home  Life  Insurance  Company  received  the 
attention  of  the  insurance  investigators  at  this  morn- 
ing's session  and  George  E.  Ide,  its  president,  was 
on  the  witness  stand.  When  he  left  the  chair,  just 
before  recess,  it  was  generally  conceded  that  Mr. 
Ide  had  made  a  very  good  witness  for  his  company. 
His  testimony  produced  an  excellent  impression. 

Mr.  Ide  answered  the  questions  of  Mr.  Hughes 
very  frankly.  He  testified  that  the  Home  Life 
dealt  with  no  particular  commission  houses  in 
making  investments,  but  used  the  market  in  gen- 
eral. No  joint  account  with  any  bank  was  main- 
tained, he  declared.  In  answer  to  Mr.  Hughes's 
inquiry  as  to  whether  the  company  was  pensioning 
anybody,  Mr.  Ide  said  that  one  clerk  who  broke 
down  in  the  service  of  the  company  received  a 
pension  of  $1000  a  year. 

The  company  carried  from  $250,000  to  $300,000 
in  cash  and  anything  above  that  amount  is  invested. 
The  company's  method  of  investment  is  this: 
Suggestions  are  made  to  the  finance  committee, 

1  Extracts  and  comments  from  leading  newspapers. 


58  ADDRESSES  AND  PAPERS 

which  meets  once  a  week,  and  this  committee 
reports  quarterly  to  the  board  of  directors  for  con- 
firmation of  its  acts.  Mr.  Ide  said  his  company  is 
not  interested  in  any  syndicate  operations,  nor  any 
of  its  officers.  .  .  . 

Mr.  Ide  explained  that  the  apportionment  of 
deferred  dividends  was  made  annually,  but  if  the 
policy-holder  wanted  to  find  out  the  amount  of  his 
dividend  he  must  make  application.  The  deferred 
dividend  system  was  preferred  by  the  companies, 
the  witness  said,  because  it  was  a  strong  element 
in  the  policy's  continuity  and  tended  to  do  away 
with  the  tremendous  lapses  that  occurred  in  Ameri- 
can business.  He  regarded  the  annual  apportion- 
ment of  dividends  as  a  valuable  check  on  the  com- 
panies. All  the  abuses  of  life  insurance,  he  said, 
were  due  to  the  accumulations  of  large  surpluses, 
where  no  annual  accountings  were  required. 


[The  New  York  Globe  and  Commercial  Advertiser,  December  11, 

1905] 

CLEAN  RECORD  IN  INSURANCE 

The  insurance  investigating  committee  and  In- 
quisitor Hughes  to-day  enjoyed  the  novel  experi- 
ence of  bringing  to  light  a  company  which  conducts 
its  business  in  a  business  way,  maintains  its  sur- 
plus unbrokenly  at  what  it  regards  as  a  safe  figure 
merely,  goes  into  the  market  for  investment  in 


EXTRACTS  FROM  NEWSPAPERS        59 

stocks  and  mortgages  only  when  its  cash  balance 
exceeds  $300,000,  participates  in  no  financial  syndi- 
cates, does  very  little  collateral  loan  business,  dis- 
tributes every  year  to  annual  dividend  policy- 
holders the  sums  due  to  them;  keeps  an  accurate 
annual  credit  account  of  deferred  dividends  for 
every  policy-holder  in  this  class,  open  at  all  times 
to  inspection,  and  is  a  stranger  to  the  recently 
exposed  system  of  nepotism  in  insurance. 

The  company  is  the  Home  Life,  and  the  witness 
was  its  president,  George  E.  Ide,  who  testified  also 
that  so  far  as  he  knew  no  other  company  followed 
this  plan  of  annual  apportionment  to  policy- 
holders. Whether  the  reason  for  this  was  that  such 
conservative  management  at  times  held  down  to 
an  embarrassing  point  the  amount  available  for 
expenses  in  getting  new  business  in  competition 
with  other  companies  Mr.  Ide  declined  to  express 
an  opinion. 

The  witness  created  a  most  favorable  impression, 
and  both  the  committee  and  Mr.  Hughes  seemed 
to  enjoy  the  novelty  of  listening  to  one  who  evi- 
dently had  nothing  to  conceal,  understood  his  busi- 
ness, and  talked  about  it  intelligently. 


: 


[New  York  Herald.    December  12,  1905] 
HOME  LIFE'S  "CLEAN  BILL" 

Mr.  Hughes  practically  finished  his  inquisition 
into  the  affairs  of  the  Home  Life  Insurance  Com- 


60  ADDRESSES  AND  PAPERS 

pany,  of  this  city,  without  having  found  anything 
scandalous  in  connection  with  its  affairs.  So  much 
could  hardly  have  been  said  of  any  other  company 
that  has  yet  come  under  his  scrutiny.  His  inquisi- 
tion was  no  less  searching  than  heretofore,  but  the 
officers  of  this  company  apparently  survived  it 
unscathed. 

George  E.  Ide,  president  of  the  company,  testi- 
fied that  his  company  deals  with  no  particular 
brokerage  house,  has  joint  accounts  with  no  banker 
or  broker,  has  no  investment  exceeding  $10,000  in 
any  trust  company  or  bank,  and  that  neither  his 
company  nor  any  of  its  officers  has  ever  taken  part 
in  syndicate  participations. 

[New  York  Evening  Sun,  December  11,  1905] 
TELLS  OF  HOME  LIFE  METHODS 

When  President  George  E.  Ide  of  the  Home  Life 
Insurance  Company  finished  his  testimony  be- 
fore the  Armstrong  committee  in  the  Aldermanic 
Chamber  of  City  Hall  this  morning,  Mr.  Hughes 
sighed :  "  It 's  hopeless ! "  Not  a  single  officer,  accord- 
ing to  Mr.  Ide's  testimony,  had  a  relative  among 
general  agents  or  managers.  Not  one  had  any 
syndicate  participations  along  with  the  company. 
There  was  no  handy  trust  company  to  help  the  com- 
pany out  with  its  surplus,  although  the  Home  Life 
does  own  a  little  stock  in  two  companies.  In  fact  Mr. 
Hughes  harvested  a  mighty  small  crop  of  admissions. 


EXTRACTS  FROM  NEWSPAPERS         61 

[New  York  Sun,  December  12,  1905] 

George  E.  Ide,  president  of  the  Home  Life,  and 
other  officers  of  that  institution  were  before  the 
committee  for  several  hours  yesterday,  and  Mr. 
Hughes  failed  to  bring  out  a  single  questionable 
transaction.  The  company  has  no  yellow  dog 
fund,  it  has  n't  made  any  political  contributions, 
it  has  n't  spent  anything  for  legislation,  its  officers 
have  not  been  involved  in  syndicates,  the  salaries 
of  its  officers  are  moderate,  compared  with  most  of 
the  other  companies. 

It  was  shown,  besides,  that  this  company  keeps 
an  actual  account  with  each  of  its  policy-holders 
in  the  deferred  dividend  class,  and  that  it  is  possi- 
ble for  a  policy-holder  to  find  out  at  Jany  time  just 
what  is  coming  to  him.  Policy-holders  in  the  annual 
dividend  class  are  allotted  their  earnings  at  the 
end  of  each  year.  It  owns  very  little  bank  and  trust 
company  stocks  and  its  cash  balances  are  kept  as 
low  as  possible. 

[New  York  Evening  World,  December  12,  1905] 

The  business  methods  of  the  Home  Life  Insur- 
ance Company,  as  explained  by  President  Ide  to 
the  investigating  committee,  show  a  conservatism 
and  a  regard  for  the  rights  of  the  policy-holders  in 
refreshing  contrast  to  the  practices  of  the  larger 
institutions. 


62  ADDRESSES  AND  PAPERS 

The  old-fashioned  theory  that  insurance  funds 
are  trust  funds  seems  still  to  obtain  in  this  com- 
pany. It  indulges  in  no  syndicate  participation. 
It  has  no  non-ledger  assets.  It  enters  into  no  joint- 
account  stock  speculations.  Regularly  every  year, 
after  the  profits  have  been  ascertained  and  an 
addition  made  to  the  surplus,  the  balance  is  appor- 
tioned among  the  policy-holders  with  mathematical 
exactness.  There  is  no  "guessing"  by  actuaries. 
Individual  accounts  are  kept  with  the  deferred 
dividend  policy-holders  and  their  policies  credited 
with  their  earnings. 

This  is  only  simple  honesty  and  fair  dealing. 
But  how  elementary  the  methods!  What  kinder- 
garten processes  by  comparison  with  the  highly 
elaborated  system  of  the  larger  companies!  And 
what  opportunities  for  personal  exploitation  left 
unutilized  by  the  officials. 

[Brooklyn  Eagle,  December,  12,  1905] 
A  MODEL  AND  A  MEASURING-ROD 

It  sounds  like  a  fairy  tale.  The  president  of  an 
insurance  company  has  escaped  unscathed.  It 
appears  that  the  affairs  of  the  Home  Life  have  been 
administered  after  such  a  fashion  that  the  witness 
sat  in  a  sort  of  easy-chair,  with  neither  trepidation 
nor  embarrassment.  Naturally,  he  was  regarded 
as  a  curiosity.  As  it  seemed  too  good  to  be  true, 
the  chairman  consulted  with  the  examiner-in-chief, 


EXTRACTS  FROM  NEWSPAPERS         63 

protesting  that  it  would  be  almost  a  reflection  upon 
the  committee  to  let  the  witness  go  without  a  sign 
of  distress,  but  Mr.  Hughes  threw  up  the  case  as 
"hopeless."  However,  after  so  many  hits  he  could 
afford  a  miss.  Unquestionably ,  if  he  were  searching 
for  a  model  or  a  measuring-rod  for  other  companies, 
he  found  it  in  George  E.  Ide's  management  of  the 
Home  Life. 

SHOWING  OF  HOME  LIFE  IN  SHARP  CONTRAST 
TO  THAT  OF  OTHER  COMPANIES 

[By  W.  C.  Hudson,  author  of  "  Problems  of  Life  Insurance] 

The  Home  Life  Insurance  Company  was  on  the 
stand  this  morning  before  the  Armstrong  Investi- 
gating Committee  in  the  person  of  George  E.  Ide, 
its  president. 

The  officers  of  this  company  were  dubbed  the 
angels  of  life  insurance  in  the  committee  room 
to-day,  because  it  was  made  clear  that,  as  an 
experienced  observer  said,  its  administration  was 
"as  clean  as  a  hound's  tooth." 

The  examination  it  was  subjected  to  was  quite 
as  searching  as  the  inquiry  into  any  other  company 
that  had  been  on  the  stand,  but  no  irregularities 
were  turned  up  to  view.  Whatever  there  was  found 
to  criticize  went  not  to  the  administration  of  this 
particular  company  but  to  the  principles  of  life 
insurance  as  generally  observed  by  all  the  com- 
panies.  Neither  the  company  nor  its  officers  had 


64  ADDRESSES  AND  PAPERS 

been  engaged  in  "syndicate  participations"  nor 
"joint  accounts."  It  carried  no  large  balances  in 
banks  or  trust  companies.  Its  custom  was  when 
these  balances  reached  the  sum  of  $250,000  or 
$300,000  to  invest  the  funds.  And  these  invest- 
ments were  preferably  made  in  long-term  bonds. 
It  did  very  little  collateral  loan  business  and  prin- 
cipally for  the  reason  that  if  a  large  business  was 
sought  in  this  line  the  bulk  of  it  must  necessarily  be 
Wall  Street  business.  Its  interest  earnings  were 
about  four  and  a  quarter  or  four  and  one  half  per 
cent. 

It  did  have  a  payment  in  the  nature  of  a  small 
pension  to  one  man  who  was  a  clerk  of  forty  years' 
service  and  who  had  become  disabled  in  the  service 
of  the  company.  Apparently  it  was  doing  nothing 
but  writing  insurance  and  strictly  attending  to 
business  in  doing  that.  When  it  invested  its  funds 
it  invested  them  in  established  securities  and  none 
at  all  in  those  of  a  promotive  stage.  And  it  only 
carried  a  surplus  of  ten  per  cent  of  its  assets  for 
contingencies. 

The  insurance  in  force  of  this  company  is  largely 
in  deferred  dividend  policies.  But  as  administered 
by  this  company  such  policies  are  in  their  least 
offensive  form.  Each  year  the  dividends  are  com- 
puted the  same  as  annual  dividend  policies  are  and 
the  results  credited  to  the  policy-holders,  knowledge 
of  which  could  be  obtained  at  any  time.  And  these 


EXTRACTS  FROM  NEWSPAPERS         65 

deferred  dividends  were  accumulated  and  a  reserve 
established  to  guarantee  them. 

This  form  of  policy  was  defended  by  Mr.  Ide  as 
more  advantageous  to  the  policy-holder  and  to  the 
company.  That  it  was  advantageous  to  the  com- 
pany was  clear,  since  in  the  event  of  death  before 
the  expiration  of  the  period  of  the  contract  the 
deferred  dividends  were  forfeited.  But  that  it  was 
of  so  much  benefit  to  the  policy-holder  was  not 
quite  so  clear,  unless  he  lived  his  term  to  the  end. 
In  that  they  were  incentives  to  live  and  not  to 
die  it  might  be  advantageous.  The  company,  how- 
ever, believes  that  the  form  makes  for  continuity 
of  contract  and  against  lapsing  and  surrender. 

The  showing  of  the  company  under  examination 
was,  to  use  the  language  of  one  of  the  counsel, 
uttered  privately,  of  the  highest  character,  careful, 
safe,  and  conservative. 

[Yale  Alumni  Weekly,  December  29,  1905] 
THAT   GOODLY  AMERICAN   COMPANY 

Some  people  need  the  suggestion  which  Mr. 
Dooley  gave  to  Mr.  Hinnessey  to  the  effect  that 
things  were  in  such  an  awful  state  in  this  country 
that,  if  he  happened  on  an  honest  man,  to  regard 
him  as  a  spy  and  put  him  out.  There  are  some, 
however,  who  have  so  far  kept  their  equilibrium 
as  to  realize  that  if  the  chief  inquisitor  of  the 
New   York  Insurance   Investigation   Committee 


66  ADDRESSES  AND  PAPERS 

had  set  out  on  the  task  to  prove  the  excellent  way 
in  which  a  great  body  of  men  in  high  fiduciary 
positions  were  meeting  their  trusts  and  carrying 
their  obligations,  he  could  have  made  a  demonstra- 
tion as  impressive  in  its  way  as  that  which  his  last 
three  months  have  left.  So  much  has  been  said  of 
the  wrong  things  shown  and  the  men  gone  wrong, 
that  there  is  some  satisfaction  in  observing  that 
when  Mr.  Hughes,  merely  intent  on  covering  the 
ground  in  his  immediate  vicinity,  or  hoping,  per- 
haps, to  prove  some  things  by  contrast,  wandered 
into  the  records  of  one  particular  corporation,  he 
found  it  doing  its  work  honestly  and  well.  By  way 
of  an  example  of  the  army  of  the  faithful,  the  record 
of  Mr.  Ide,  Yale,  '81,  goes  into  the  book  of  dis- 
closures. The  discriminating  historian  will  perhaps 
make  more  notes  concerning  it  than  concerning 
thousands  of  pages  of  other  records  which  hap- 
pen to  environ  it.  He  will  be  reminded  of  the 
existence,  even  in  these  days,  of  that  goodly  Ameri- 
can company  "who  did  their  work  and  held  their 
peace  and  had  no  fear"  —  even  of  Mr.  Hughes. 


PROPOSED  AMENDMENT  OF  THE 
NEW  YORK  INSURANCE  LAW1 

AN  ACT  TO  AMEND  THE  INSURANCE  LAW 
GENERALLY 

Section  87.  Contingency  reserve. — Any  life  insurance 
corporation  doing  business  in  this  State  may  accumulate 
and  maintain  a  contingency  reserve  out  of  the  surplus 
attributable  to  policies  issued  on  or  after  the  first  day  of 
January,  nineteen  hundred  and  seven,  not  exceeding 
the  following  respective  percentages  of  the  net  values  of 
said  policies  computed  according  to  the  legal  minimum 
standard  prescribed  by  section  eighty-four  of  this 
chapter,  to  wit:  When  said  net  values  are  less  than  one 
hundred  thousand  dollars,  twenty  per  centum  thereof 
or  the  sum  of  ten  thousand  dollars,  whichever  is  the 
greater;  when  said  net  values  are  greater  than  one  hun- 
dred thousand  dollars,  the  percentage  thereof  measuring 
the  contingency  reserve  shall  decrease  one  half  of  one 
per  centum  for  each  one  hundred  thousand  dollars  up 
to  one  million  dollars;  one  half  of  one  per  centum  for 
each  additional  two  million,  five  hundred  thousand 
dollars  up  to  twenty  million  dollars;  one  half  of  one  per 
centum  for  each  additional  five  million  dollars  up  to 
fifty  million  dollars;  one  half  of  one  per  centum  for  each 
additional  twenty-five  million  dollars  up  to  one  hundred 
million  dollars;  one  half  of  one  per  centum  for  each 

1  An  address  delivered  before  the  Committee  of  the  New  York 
Senate  and  Assembly  in  reference  to  proposed  legislation  on  the  sub- 
ject of  life  insurance,  March  9,  1906. 


68  ADDRESSES  AND  PAPERS 

additional  fifty  million  dollars  up  to  two  hundred 
million  dollars;  one  half  of  one  per  centum  for  each 
additional  one  hundred  million  dollars  up  to  five  hun- 
dred million  dollars;  and  if  said  net  values  equal  or 
exceed  the  last-mentioned  amount,  the  contingency 
reserve  shall  not  exceed  two  per  centum  thereof.  Pro- 
vided, that  as  the  net  values  of  said  policies  increase  and 
the  maximum  percentage  measuring  the  contingency 
reserve  decreases  such  corporation  may  maintain  the 
contingency  reserve  already  accumulated  hereunder, 
although  for  the  time  being  it  may  exceed  the  maximum 
percentage  herein  prescribed,  but  may  not  add  to  the 
contingency  reserve  when  the  addition  will  bring  it 
beyond  the  maximum  percentage;  and  provided  further , 
that  no  such  corporation  having  existing  surplus  funds 
or  contingent  reserves  or  funds  awaiting  distribution 
as  deferred  dividends  shall  be  entitled  at  any  time  to 
accumulate  any  additional  contingency  reserve  under 
this  section  except  to  the  extent  that  the  aggregate  of 
such  reserves  and  funds  is  less  than  the  contingency 
reserve  to  which  it  would  be  entitled  according  to  the 
rates  above  mentioned  if  computed  upon  the  net  values 
of  the  total  policies  then  outstanding. 

Mr.  Chairman,  and  Gentlemen:  — 

The  three  large  companies  of  New  York  City 
have  been  heard  from  directly  by  their  presidents. 
Six  of  the  smaller  companies  of  the  city  of  New 
York,  namely,  the  Manhattan,  the  Germania,  the 
Washington,  the  Provident  Savings,  the  United 
States,  and  my  own  company,  the  Home,  deter- 
mined that  it  would  be  only  a  waste  of  time  for  you 


PROPOSED  LEGISLATION  69 

to  hear  individually  from  those  presidents.  They 
selected  me  to  speak  for  them,  and  it  is  with  great 
diffidence,  I  assure  you,  that  I  undertake  that  task. 

The  sentiment  of  the  gentlemen  who  occupy  the 
presidents'  chairs  in  these  companies  is  unanimous; 
we  all  know  what  we  want.  We  realize  very  firmly, 
very  fully,  the  wonderful  scope  of  this  change  which 
is  now  proposed.  The  insurance  law  of  the  State 
of  New  York  is  the  result  of  a  growth  of  many, 
many  years.  Under  the  law,  be  it  wise  or  unwise, 
there  have  been  developed  the  greatest  life  insur- 
ance companies  which  the  world  has  ever  seen. 
Now,  gentlemen,  after  a  six  months'  investigation, 
after  sixty  days  of  consideration,  a  new  bill  is  put 
before  you  which  I  beg  to  assure  you  is  revolution- 
ary in  its  character.  I  am  not  prepared  to  say  that 
I  am  not  thoroughly  in  accord  with  the  underlying 
spirit  of  that  measure,  but  I  assure  you,  as  a  prac- 
tical business  man,  that  the  result  which  you  are 
having  in  mind  in  framing  that  bill  will  not  be 
carried  out  if  it  becomes  a  law. 

The  object,  I  understand,  of  this  proposed  legis- 
lation is  to  upbuild  the  business,  and  I  have  been 
told  that  it  was  your  intent  to  curtail  the  larger 
companies  and  to  help  the  smaller  companies.  I 
assure  you  the  bill  will  accomplish  the  first  of  these 
two  objects  —  it  will  curtail  the  large  companies; 
but  in  the  cataclysm  which  follows,  I  shudder  to 
think  what  will  become  of  us,  because  I  see  nothing 


70  ADDRESSES  AND  PAPERS 

in  the  bill  which  offers  the  slightest  relief  or  assist- 
ance to  the  smaller  companies. 

All  of  this  is  introductory  to  the  main  general 
thought  which  I  want  to  bring  out  —  that  is,  that 
we  are  not  antagonistic  to  the  measure,  as  a  meas- 
ure, nor  are  we,  the  smaller  companies,  antago- 
nistic to  what  we  believe  to  be  the  intent  of  the 
gentlemen  who  drew  this  bill;  but  this  is  so  vast 
a  subject  that  we  ask  you  to  give  to  it  the  time 
which  is  necessary  for  its  careful  consideration. 
All  we  ask  is  that  you  hear  the  testimony  of  gentle- 
men who  have  studied  this  business,  who  have  prac- 
ticed this  business  for  years,  and  who,  I  say  it  in 
absolute  earnestness,  are  entitled  to  your  considera- 
tion. 

The  actuaries  of  the  companies  have  been  called 
together  and  they  met  in  my  office  some  two  weeks 
ago,  twenty-six  of  them,  from  all  over  the  country, 
to  consider  this  measure.  The  questions  they  will 
want  to  take  up  in  detail  it  appears  to  me  —  and  I 
am  following  the  very  kind  suggestion  of  the  chair- 
man in  making  a  free  expression  of  my  thought  — 
the  questions  which  they  will  want  to  bring  up 
are  of  such  a  nature  that  they  cannot  be  discussed 
in  a  mass  meeting.  There  is  only  one  way  to  get 
at  the  true  inwardness  of  these  mathematical 
questions,  and  that  is  by  a  heart-to-heart  discussion 
where  questions  can  be  asked  and  expressions  of 
opinions  given. 


PROPOSED  LEGISLATION  71 

So  much  for  the  general  attitude  of  the  smaller 
companies  on  this  particular  question.  I  have  been 
asked  also  to  speak  briefly  in  regard  to  section  87 
of  your  bill. 

[Mr.  Wainwright:  Which  bill  is  that?] 
The  section  which  you  will  find  in  the  act  to 
amend  the  insurance  law  generally,  no.  996,  sec- 
tion 87,  page  33.  The  provisions  of  this  particular 
section  are,  in  brief,  that  a  company  may  accumu- 
late and  maintain  a  contingent  reserve  out  of  the 
surplus  ordinarily  divisible  to  policy-holders  on  a 
certain  basis  of  percentage  of  the  mean  reserve  or 
net  value  of  its  policies,  and  that  the  surplus  must 
not  exceed  that  amount.  In  other  words,  it  pro- 
vides a  maximum  contingent  fund  which  the  com- 
panies may  be  allowed  to  keep  as  a  margin  of 
safety.  This  section  is  difficult  to  discuss  in  such  a 
general  assembly  as  this,  if  I  take  it  exactly  as  it  is 
written.  It  starts  off  with  a  manifest  intention  of 
dividing  every  company  in  business  into  two  com- 
panies —  one  the  company  representing  the  old 
policy-holders  who  had  the  misfortune  to  be 
insured  before  the  first  day  of  January,  1907;  the 
second  class,  the  new  policy-holders  who  come  in 
under  this  new  law.  I  will  not  go  into  this  technical 
discussion.  It  is  one  of  those  questions  which  I 
think  cannot  be  discussed  profitably  here;  I  will 
simply  state  that  it  is  my  opinion  that  a  gross 
injustice  is  done  by  this  provision  to  the  old  policy- 


72  ADDRESSES  AND  PAPERS 

holders.  Later  on  in  this  section  we  find  that  the 
closing  clause  seems  in  some  way  to  bulk  together 
all  the  accumulated  funds  of  the  past  and  put  them 
in  with  the  new  funds  unless  an  entirely  new  sys- 
tem of  bookkeeping,  not  called  for  in  the  policy 
contract  of  many  of  the  companies,  is  inaugurated. 
I  will  not  attempt  to  speak  of  that  feature  of  the 
bill,  which  I  believe  to  be  enough  to  condemn  it. 

I  want  to  speak  of  the  general  underlying  prin- 
ciple. The  intent  of  this  law  is  plain.  The  intent 
is  to  compel  the  managers  to  distribute  to  the 
policy-holder  his  proper  share  of  the  divisible 
surplus.  This  is  one  of  those  points  where  I  say, 
gentlemen,  the  intent  is  magnificent;  the  way  you 
have  carried  it  out  I  believe  to  be  wrong.  This  is, 
as  far  as  I  know,  the  first  law  which  has  ever  been 
proposed  whereby  a  limit  is  put  upon  conservatism. 
The  French  Government  to-day  has  under  consid- 
eration a  law  compelling  the  companies  to  charge 
a  certain  premium  and  no  less  for  an  ordinary  life 
policy;  and  that  is  the  usual  trend  of  law  on  insur- 
ance matters.  Everything  previously  has  been  in 
the  line  of  safety.  This  bill  says  it  is  a  misdemeanor 
to  be  conservative. 

Now,  gentlemen,  who  is  responsible  for  the  ulti- 
mate judgment  as  to  how  much  or  how  little  of  our 
profits  we  shall  keep  as  a  safety  fund  for  future 
times  of  stress?  Are  the  gentlemen  of  this  Legisla- 
ture, who  finally  are  to  pass  upon  this  bill,  willing 


PROPOSED  LEGISLATION  73 

to  say  to  the  directors  of  the  life  insurance  com- 
panies of  this  country,  * 'Gentlemen,  we  free  you  of 
responsibility;  we  will  determine  how  much  you 
will  divide"?  I  think  not. 

Now  there  can  be,  in  my  opinion,  no  hard-and- 
fast  rule  for  all  life  insurance  companies.  The  size 
of  the  net  reserve  is  no  criterion.  Take  this  one 
simple  question,  which  is  actuarial,  by  the  way,  and 
yet  I  believe  I  can  make  it  plain  to  every  one  — 
take  the  proportion  of  old  and  new  business  which 
a  company  carries.  Suppose  we  have  a  company 
where  the  great  preponderance  of  insurance  is  old 
insurance,  where  the  effect  of  the  medical  selection 
which  we  make  in  the  acceptance  of  risks  has  dis- 
appeared, where  we  are  getting  close  to  if  not 
beyond,  in  many  instances,  the  ordinary  mortality 
tables,  —  do  you  mean  to  say  that  that  company 
needs  the  same  surplus  as  a  company  which  has 
the  preponderance  of  its  insurance  consisting  of 
selected  risks  placed  on  its  books  within  the  last  ten 
years?  I  do  not  believe  that  any  such  limit  is 
necessary,  but  if  you  are  going  to  put  a  limit,  put 
it  so  ridiculously  high  that  no  company  in  the 
ordinary  conduct  of  its  business  would  think  of 
reaching  such  a  figure. 

Take  another  matter;  take  the  fluctuation  of 
securities.  In  that  connection  I  may  be  met  by 
the  remark  that  mortgage  loans  on  real  estate,  the 
ideal  investment  in  the  minds  of  some,  do  not  flue- 


74  ADDRESSES  AND  PAPERS 

tuate.  They  do  not  fluctuate,  gentlemen,  on  their 
face,  but  remember  that  in  1903,  —  I  speak  of  the 
last  panic,  —  remember  that  in  1903,  those  of  us 
who  held  marketable  securities,  bonds  and  stocks, 
in  our  statement  to  the  Insurance  Department  of 
the  State  of  New  York  quoted  these  securities  at 
what  they  would  bring  when  nobody  was  buying 
anything,  and  the  companies  with  mortgage  loans 
quoted  their  mortgages  at  par.  You  could  not 
have  sold  the  collateral,  you  could  not  have  dis- 
posed of  the  mortgages,  and  yet  their  statement 
was  unimpaired  by  the  panic  of  1903. 

Now  take  two  companies  with  exactly  the  same 
net  reserve,  one  with  its  assets  cut  down  for  the 
time  being  by  the  crash  in  Wall  Street,  the  other 
with  its  assets  invested  in  mortgages  unimpaired. 
Do  you  mean  to  say  that  the  security  company, 
the  one  with  the  securities,  needed  the  same 
surplus  on  December  31,  1903,  as  the  other  com- 
pany, the  company  with  mortgages  which  was 
really  using,  under  your  practice,  fictitious  values? 
I  believe  not. 

Take  this  very  case  of  1903,  because  it  im- 
pressed itself  very  strongly  on  our  minds.  If  you 
gentlemen  will  pardon  a  personal  allusion  to  my 
own  company,  —  for  I  believe  that  a  tangible 
example  is  the  best  way  to  bring  my  argument 
before  you,  —  in  1901,  or  rather,  I  think,  the  end 
of  1900,  we  determined  that  the  prices  of  securities 


PROPOSED  LEGISLATION  75 

in  our  opinion  were  very  high  and  we  laid  aside  (I 
believe  it  was  the  first  time  this  was  ever  done  by 
any  company)  a  special  fund  for  possible  future 
fluctuations  in  the  price  of  securities.  We  came  to 
1902,  the  situation  was  unchanged,  prices  were 
still  high;  and  we  increased  that  fund.  When  the 
panic  struck  us  in  1903  the  surplus  of  our  company 
was  depleted  to  a  certain  extent,  but  there  was 
nothing  in  it  to  alarm  the  policy-holders.  Now, 
gentlemen,  had  we  been  up  to  the  limit  prescribed 
by  this  bill  in  1901,  it  would  have  been  a  misde- 
meanor for  us  to  have  laid  aside  that  contingent 
fund  and  prepared  ourselves  for  the  storm.  Do 
you  think  that  is  wise? 

I  suppose  that  it  will  be  said  that  this  is  a  safe 
margin;  that,  gentlemen,  is  not  so.  It  is  arranged 
on  a  scale  by  which  the  percentage  which  the  com- 
panies are  allowed  to  keep  varies  according  to  mere 
rule  of  thumb,  according  to  the  size  of  the  com- 
pany, decreasing  as  the  company  grows  larger,  until, 
coming  to  the  largest  companies  of  our  State,  only 
two  per  cent  is  required.  Now,  I  am  informed  by 
the  officials  of  the  New  York  Life,  although  you 
remember  they  were  only  carrying  bonds  and  none 
of  those  much-hated  stocks,  that,  had  they  had 
only  two  per  cent  when  1903  came,  the  New  York 
Life  might  have  been,  and  would  have  been  tem- 
porarily, insolvent. 

This  is  a  serious  question,  it  is  a  serious  situation 


76  ADDRESSES  AND  PAPERS 

which  you  intend  to  force  upon  us  by  this  measure. 
There  is  another  question  affecting  the  policy- 
holder directly.  You  ask  us  to  distribute  to  our 
policy-holder  all  of  this  money  above  the  limit  which 
you  have  prescribed.  That  means  that  in  one  year, 
of  high  security  values,  of  general  prosperity,  of 
low  mortality,  the  dividends  would  be  very  large; 
the  next  year  it  might  be  that  we  would  have  a 
heavy  mortality;  a  shrinkage  in  securities,  a  bad 
year  generally,  then  the  dividends  would  decline. 
Now,  in  my  experience  in  life  insurance  matters,  I 
find  that  the  only  way  to  keep  the  public  satisfied 
is  not  to  alarm  them  by  violent  fluctuations.  You 
must  have  a  stable  rate  of  dividends,  growing  if 
your  company  is  growing  in  prosperity,  but  grow- 
ing in  gradual  gradation.  You  do  not  want  these 
violent  fluctuations  up  and  down  where  the  policy- 
holder asks,  "What  does  this  mean?  Is  my  com- 
pany becoming  insolvent?"  —  and  writes  to  the 
home  office.  You  can  only  maintain  confidence  in 
the  minds  of  a  mass  of  policy-holders  by  handling 
your  business  in  a  uniform  and  reasonable  manner. 
I  do  not  wish  to  tire  the  committee  by  going  into 
all  the  details  of  this  particular  section,  but  it 
seems  to  me  one  that  is  of  vast  importance.  I  will 
simply  mention,  in  the  hope  that  you  will  look  into 
it  more  fully,  the  effect  upon  the  relative  dividends 
in  large  companies  and  small  companies  as  the 
result  of  this  provision. 


PROPOSED  LEGISLATION  77 

[Senator  Armstrong:  Mr.  Ide,  it  is  our  policy, 
of  course,  not  to  enter  into  any  controversial  argu- 
ment with  any  of  the  speakers  because  we  do  not 
want  to  use  their  time.  The  statement  you  suggest, 
that  it  is  necessary,  in  order  to  transact  a  satisfac- 
tory life  insurance  business,  that,  irrespective  of 
the  gains  or  losses  year  by  year  of  the  company, 
dividends  should  be  kept  uniform,  is  a  very  inter- 
esting one.  I  hope  that  you  won't  pass  over  that 
and  dismiss  it  because  you  think  that  you  are 
pressed  for  time  in  any  way.] 

What  I  mean,  and  I  am  glad  you  brought  the 
point  out,  what  I  mean  is  that  if  you  find  (if  I  can 
indicate  it  by  a  gesture)  that  the  progress  of  your 
company  as  a  money-making  concern  for  the 
policy-holders  is  indicated  by  a  line  [indicating] 
gradually  rising,  it  is  in  my  opinion  very  unwise 
to  show  in  the  annual  dividends  to  the  policy- 
holder each  one  of  these  annual  fluctuations.  You 
must  be  allowed  in  your  judgment  to  take  the 
mean  line,  give  him  the  benefit  of  the  gradual  im- 
provement, but  not  show  him  the  fluctuation  of 
each  individual  year.   I  think  you  could  — 

[Senator  Armstrong:  I  don't  get  the  idea  yet 
why  the  fact  is  dangerous.] 

Because  the  policy-holder  becomes  unsettled 
when  he  finds  his  dividends  fall  in  a  given  year.  If 
we  are  allowed,  in  our  judgment,  to  carry  enough 
reserve  over  from  a  previous  year  to  carry  out  my 


78  ADDRESSES  AND  PAPERS 

idea  of  a  gradual  improvement,  without  giving 
him  notice  of  the  fact  there  has  been  a  slump  in  a 
particular  year,  he  is  undisturbed  on  the  same 
principle. 

[Senator  Armstrong:  But  that  is  a  case  of 
ignorance  being  bliss.] 

Well,  the  majority  of  all  the  policy-holders  on 
the  insurance  question,  I  believe,  are  ignorant  of 
the  causes  which  must  necessarily  lead  up  to  an 
annual  fluctuation  of  that  sort,  particularly  in 
smaller  companies. 

[Senator  Tully:  Why  is  not  he  entitled  to 
know?] 

He  is,  if  you  think  it  is  necessary  to  alarm  him, 
but  I  don't  think  it  is;  I  don't  think  it  does  any 
good. 

[Senator  Armstrong:  Suppose  that  a  fluctua- 
tion occurs  through  something  else  than  a  natural 
trend  of  events  and  is  something  the  policy-holder 
should  know,  how  are  they  going  to  compel  the 
revelation  of  that  fact?] 

That  would  show  in  the  diminution  of  the  sur- 
plus, under  my  plan;  he  would  get  not  a  smaller 
dividend  than  last  year,  but  a  dividend  very  much 
more  stable,  and  the  effect  upon  the  surplus  would 
be  to  make  that  perhaps  fluctuate  with  some 
violence. 

[Senator  Raines:  If  you  will  excuse  me,  the 
policy-holder  in  the  event  of  the  gradual  increase 


PROPOSED  LEGISLATION  79 

would  be  less  inclined  to  forfeit  his  insurance  and 
lose  by  dropping  his  policy?] 

Exactly;  yes.  In  other  words,  if  I  may  take 
another  example,  it  is  very  much  like  the  conduct 
of  a  railroad.  I  believe  it  is  considered  very  unwise 
for  a  railroad  to  distribute  all  of  its  surplus  earn- 
ings in  times  of  great  prosperity  because  it  must 
prepare  for  the  times  of  adversity  which  are  sure 
to  come. 

If  I  may,  then,  simply  state  the  reasons  why  I 
believe  that  this  section  is  unwise,  the  points  could 
be  briefly  covered  as  follows:  — 

To  determine  the  amount  of  surplus  necessary 
for  the  good  of  a  company,  the  person  determining 
the  surplus,  or  the  board  of  directors  determining 
that  surplus,  must  have  an  accurate  knowledge  of 
its  internal  affairs.  They  must  be  thoroughly  posted 
as  to  whether  the  preponderance  of  the  insurance 
is  old  insurance  or  new  insurance,  whether  in  con- 
sequence of  that  there  is  a  probability  of  a  high  or 
low  mortality.  I  speak  again  of  the  necessity  of  a 
fairly  stable  rate  of  dividends,  which  in  the  small 
companies  especially  is  impossible  under  your  bill. 
The  man  determining  how  much  surplus  a  com- 
pany should  have  must  also  be  intimately  aware 
of  the  nature  of  its  investments  and  the  probability 
of  the  future  fluctuations  adversely  or  favorably. 

I  do  not  see,  in  view  of  these  facts,  how  any 
law  can  be  wise  which  has  as  its  basis  the  size  of 


80  ADDRESSES  AND  PAPERS 

the  net  reserve,  and  I  believe  it  is  an  extremely 
dangerous  matter,  as  I  said  before,  for  you  gentle- 
men to  attempt  to  take  away  from  the  directors  the 
serious  responsibility  which  rests  upon  them  of 
conducting  a  safe  company,  for,  in  my  opinion,  the 
size  of  the  dividend,  the  size  of  the  return,  the  size 
of  the  concession,  the  liberality  of  the  contract, 
all  other  features  sink  into  absolute  insignificance 
in  comparison  with  the  one  fundamental  fact  that 
life  insurance  must  be  safe.  I  really  feel  that,  apart 
from  the  actuarial  questions  which  I  referred  to  at 
the  start,  the  bill  as  written  is  in  principle  wrong, 
and  that  the  more  you  look  into  the  subject  and 
study  its  practical  operation,  the  more  you  will  be 
convinced  that  the  matter  has  not  had  as  careful 
consideration  as  was  necessary  before  this  section 
was  drafted. 

[Assemblyman  Rogers:  Mr.  Ide,  you  have 
made  criticisms  and  I  would  like  you  to  be  a  little 
more  specific  in  your  suggestions  of  the  modifica- 
tions in  the  proposed  legislation.] 

My  suggestions  will  naturally  be  confined  only 
to  these  points,  because  the  others  will  be  taken 
up  by  other  gentlemen  later.  My  suggestion  on 
this  section  is  that  we  do  not  need  it. 

[Assemblyman  Rogers:  Eliminate  it  entirely?] 

If  you  feel  that  you  must  have  it,  which  I  deem 
very  unwise,  if  you  deem  you  must  have  it,  there  is 
no  reason  on  earth  that  I  can  see  why  the  New 


PROPOSED  LEGISLATION  81 

York  Life  should  not  be  allowed  to  carry  as  large 
a  ratio  of  reserve  as  I  carry  in  the  Home  Life,  and 
your  limit  must  be  put  so  high  that  in  times  like 
1903,  or  other  times  of  stress,  the  directors  may 
act  without  restraint. 

[Assemblyman  Cox  :  Can  you  suggest  any 
figures?] 

That  was  asked  me  on  the  stand  and  I  come  back 
to  the  original  statement:  I  must  know  the  internal 
character  of  each  company,  the  nature  of  its  mor- 
tality, the  nature  of  its  investment,  before  I  can 
give  any  figures.  I  do  not  think  you  need  the 
section;  I  think  it  will  only  do  harm. 


THE  FUNDAMENTALS  OF 
LIFE  INSURANCE1 

The  great  popular  interest  which  is  now  being 
manifested  in  the  subject  of  life  insurance  makes  it 
imperative  that  the  public  should  clearly  under- 
stand some  of  the  fundamental  principles  of  this 
great  science.  The  ignorance  prevailing  on  this 
subject  is  possibly  not  strange,  but  false  impres- 
sions have  led  to  false  conclusions,  which  have 
influenced  not  only  public  opinion,  but  have  been 
the  basis  of  some  recent  legislation. 

The  principles  which  are  explained  in  this  pam- 
phlet are  elementary;  they  are  presented  in  a 
simple  and  untechnical  manner,  in  the  hope  that 
they  may  form  a  basis  for  better  understanding  and 
clearer  judgment. 

Premiums  and  Reserves.  Let  us  first  consider  the 
basic  principle  of  a  life  insurance  contract,  and  in 
order  to  do  so  we  will  consider  a  concrete  example 
based  upon  hypothetical  conditions.2  Suppose  a 
company  is  formed  of  one  thousand  men;  that  the 
age  of  each  man  is  forty;  that  each  is  insured  for 

1  Pamphlet  issued  in  1907. 

2  This  illustration  and  explanation  are  based  upon  the  examples 
given  in  the  A,  B,  C,  of  Life  Insurance,  published  by  the  Spectator 
Company,  of  New  York,  and  are  used  by  permission  of  the  publishers. 


THE  FUNDAMENTALS  83 

eleven  hundred  dollars;  that  one  hundred  men  will 
die  during  the  first  and  each  succeeding  year;  that 
every  man  remains  in  the  company  until  his  death 
occurs;  that  the  company  receives  nothing  for 
interest  on  money  in  its  hands  and  pays  nothing 
for  expenses  for  conducting  the  business. 

Suppose  these  men  agree  to  pay  a  uniform 
amount  of  two  hundred  dollars  each  year  as  long 
as  they  live  as  a  premium  for  the  insurance.  There 
would  then  be  one  thousand  men  paying  premiums 
the  first  year,  nine  hundred  the  second,  and  so  on. 

The  result  would  be  as  shown  in  the  accompany- 
ing table. 


1000 X  $200= 

ioox$noo= 

900X  $200  = 

ioox$noo= 

800X  $200= 
100X$H00  = 
700X  $200  = 
100X$1100= 

600X  $200= 

ioox$noo= 


=$200,000, 

=   110,000, 

$90,000, 

=  $180,000, 

$270,000, 
»   110,000, 

$160,000, 
=  $160,000, 

$320,000, 

:     110,000, 

$210,000, 
=  $140,000, 

$350,000, 
=   110,000, 

$240,000, 
=  $120,000, 

$360,000, 
■   110,000, 

$250,000, 


Premiums  received  beginning 
Losses  paid  during 
Amount  in  hand  at  end  of 
Premiums  received  beginning 
Total  amount  in  hand  beginning 
Losses  paid  during 
Amount  in  hand  at  end  of 
Premiums  received  beginning 
Total  amount  in  hand  beginning 
Losses  paid  during 
Amount  in  hand  at  end  of 
Premiums  received  beginning 
Total  amount  in  hand  beginning 
Losses  paid  during 
Amount  in  hand  at  end  of 
Premiums  received  beginning 
Total  amount  in  hand  beginning 
Losses  paid  during 
Amount  in  hand  at  end  of 


Second 
year, 
age  41 

Third 
year, 

age  42 


Fifth 
year, 

age  44 


84  ADDRESSES  AND  PAPERS 

500X  $200 =$100,000,  Premiums  received  beginning 

$350,000,  Total  amount  in  hand  beginning 
100X$H00=  110,000,  Losses  paid  during 

$240,000,  Amount  in  hand  at  end  of 
400  X  $200=  $80,000,  Premiums  received  beginning 

$320,000,  Total  amount  in  hand  beginning 
100X$H00=  110,000,  Losses  paid  during 

$210,000,  Amount  in  hand  at  end  of 
300X  $200=  $60,000,  Premiums  received  beginning 

$270,000,  Total  amount  in  hand  beginning 
100X$1100=  110,000,  Losses  paid  during 

$160,000,  Amount  in  hand  at  end  of 
200  X  $200=  $40,000,  Premiums  received  beginning       } 

$200,000,  Total  amount  in  hand  beginning  I 
100X$H00=  110,000,  Losses  paid  during 


Eighth 
year, 
age  47 

Ninth 
year, 
age  48 


$90,000,  Amount  in  hand  at  end  of 
100X  $200=  $20,000,  Premiums  received  beginning       1  Tenth 
$110,000,  Total  amount  in  hand  beginning  f   vear» 
100X$1100=$110,000,  Losses  paid  during  J  age  49 

00 

This  example  contains  the  fundamental  princi- 
ple of  a  life  insurance  contract,  and  the  example  is 
fully  as  instructive  as  though  we  had  taken  the  regu- 
lar mortality  tables  as  a  basis  and  thereby  made  the 
calculation  more  complicated.  A  few  facts  are  at 
once  self-evident  from  a  study  of  this  example. 

The  annual  cost  of  insurance  (that  is  the  amount 
of  loss  in  any  one  year  divided  by  the  number  of  men 
living  at  the  beginning  of  that  year)  varies  from  year 
to  year,  although  the  premium  remains  the  same. 

For  the  first  year  the  cost  of  insurance  is  $110,- 
000,  divided  by  1000,  or  $110  per  man.  The  second 
year  the  cost  of  insurance  is  $110,000,  divided  by 


THE  FUNDAMENTALS  85 

900,  or  $122.33  per  man.  In  the  same  way  the  cost 
the  third  year  is  $137.50  per  man,  and  the  fourth 
year,  $157.14  per  man,  and  so  on. 

When  we  reach  the  point  where  more  than  one 
half  of  the  original  number  of  men  is  dead  the  cost 
will  exceed  the  premium  —  that  is,  in  the  sixth 
year  the  cost  is  $110,000  divided  by  500,  or  $220 
per  man.  It  is  therefore  at  once  evident  that  a 
uniform  or  level  premium  involves  an  annual 
premium  in  the  early  years  of  the  contract  in  excess 
of  the  actual  cost  of  insurance,  and  necessarily 
these  excess  payments  must  be  reserved  by  the 
company  to  make  good  the  deficit  which  would 
otherwise  occur  during  the  latter  part  of  the  term, 
and  the  amount  so  laid  aside  is  what  is  technically 
known  in  our  business  as  the  "reserve,"  and  wher- 
ever the  level  or  uniform  premium  plan  is  adopted 
such  a  "reserve"  must  be  kept  intact  if  the  com- 
pany hopes  to  meet  its  obligations  during  the 
latter  years  of  the  life  of  a  policy  contract. 

When  this  plan  of  operation  is  practically  carried 
out  in  the  working  of  a  life  insurance  company,  the 
problem  is  more  complicated  than  the  example 
which  we  have  given.  These  reserve  funds  growing 
from  year  to  year  must  earn  interest,  and  the  calcu- 
lation is  based  upon  some  fixed  rate  of  interest 
determined  upon  in  advance.  A  natural  basis  of 
calculation  is  some  chosen  mortality  table  based 
upon  observation  and  experience. 


86  ADDRESSES  AND  PAPERS 

The  actual  growth  of  "reserve"  on  a  $1000,  or- 
dinary life  policy  at  age  thirty-five,  where  the  rate 
of  interest  which  the  reserve  earns  is  supposed  to 
be  four  per  cent,  is  shown  in  the  table  appended: 

$1000  POLICY 

Year  Ordinary  life 

1st  $  11.48 

5th  58.71 

10th  133.41 

15th  214.30 

20th  301.35 

25th  392.53 

30th  484.64 
etc. 

If  a  company  had  one  thousand  policies  of  $1000 
each,  or  $1,000,000  of  insurance  of  this  particular 
kind,  it  would  be  evident  that  it  would  have  to 
have  on  hand  as  a  reserve  fund  $214,300  at  the 
end  of  the  fifteenth  year,  $301,350  at  the  end  of 
the  twentieth  year,  and  $484,640  at  the  end  of  the 
thirtieth  year;  and  if  it  did  not  have  this  sum  on 
hand,  it  would  not  be  in  a  position  to  meet  its  future 
obligations. 

Under  the  level  premium  plan  these  reserves 
with  few  exceptions  must  increase  each  year  on 
each  policy,  and  that  is  why  the  States  use  these 
reserves  as  the  measure  of  solvency  of  life  insur- 
ance companies.  Further,  this  fact  must  be 
remembered,  even  if  a  company  does  no  new  busi- 


THE  FUNDAMENTALS  87 

ness,  its  assets  must  increase  (for  some  time  at 
least)  to  meet  the  increasing  reserve. 

The  figures  of  one  company,  whose  insurance 
in  force  has  remained  about  stationary  during  the 
past  few  years  will  illustrate  this  point:  — 

Year  Amount  insured  Policy  reserve 

1903  $69,800,000     $15,800,000 

1904  72,600,000  16,300,000 

1905  76,000,000  17,100,000 

1906  74,400,000  17,700,000 

1907  69,000,000  18,100,000 

From  1903  to  1907  the  insurance  in  force  de- 
creased $800,000,  but  the  reserve  increased  $2,300,- 
000,  and  if  that  company  had  had  no  surplus  in 
1903,  and  if  the  assets  had  not  increased  by  at  least 
$2,300,000,  some  States  would  have  declared  the 
company  insolvent.  In  another  company  during 
the  same  period  the  insurance  in  force  decreased 
from  $44,000,000  to  $35,000,000  and  the  "reserve" 
increased  $144,000. 

During  the  recent  period  of  agitation  in  refer- 
ence to  insurance  matters  the  charge  has  been 
made  that  life  insurance  companies  were  unneces- 
sarily accumulating  assets,  and  that  this  tendency 
is  a  public  menace.  No  life  insurance  company 
can  fail  to  accumulate  assets  if  it  hopes  to  meet  its 
obligations  in  the  future;  and,  furthermore,  no 
insurance  company  can  meet  the  statutory  require- 
ments of  the  States  unless  it  does  accumulate 


88  ADDRESSES  AND  PAPERS 

assets  in  a  sufficient  proportion  to  meet  the  neces- 
sary growth  in  its  own  "reserve."  These  facts  are 
fundamental,  and  were  they  thoroughly  under- 
stood much  of  the  present  criticism  of  life  insurance 
companies,  as  great  accumulators  of  unnecessary 
funds,  would  promptly  vanish. 

Loadings  and  Dividends.  Our  attention  thus  far 
has  been  directed  to  the  "premium"  and  "reserve," 
and  we  have  been  dealing  with  net  figures.  The  net 
premium  is  simply  sufficient  to  meet  the  require- 
ments of  the  policy  contract,  and  to  this  we  must 
add  an  amount  to  provide  for  contingencies  and 
expenses.  This  margin  is  known  as  "the  loading." 

In  some  companies  this  "loading"  is  small,  and 
no  part  of  it  is  ever  returned  to  the  policy-holders. 
These  are  called  "non-participating"  companies. 
In  others  the  loading  is  larger,  and  a  return  of  a 
portion  of  it,  as  well  as  other  savings,  is  made  to 
the  policy-holder.  These  are  "participating"  com- 
panies. The  money  so  returned  is  called  a  "divi- 
dend." This  term  is  unfortunate  and  misleading. 
In  our  minds  the  word  "dividend"  is  associated 
primarily  with  that  increment  of  profit  from  indus- 
trial operations  or  corporate  management  which  is 
distributed  among  shareholders  or  partners  in 
an  enterprise.  Between  that  form  of  "dividend" 
and  the  "dividend"  in  life  insurance  there  is  little 
analogy,  and  yet  most  argument  on  the  subject, 
and  unfortunately  most  legislation,  are  based  upon 


THE  FUNDAMENTALS  89 

the  supposition  that  both  are  sufficiently  similar 
to  call  for  the  application  of  the  same  rules  in  their 
determination  and  the  same  general  style  of  legis- 
lation in  their  regulation. 

If  the  "loading"  is  larger  than  the  necessities 
of  the  case  require,  part  of  it  is  given  back  to  the 
policy-holder.  It  is  simply  a  return  of  what  has 
proven  to  be  an  overpayment. 

These  are  the  sources  from  which  dividends 
arise:  first,  the  mortality  may  be  more  favorable 
than  that  expected  under  the  table  upon  which 
the  premium  is  based;  second,  the  rate  of  interest 
earned  on  the  company's  assets  may  be  greater 
than  that  upon  which  the  calculation  has  been 
made;  third,  the  expenses  of  the  company  may  be 
less  than  the  "loading"  which  was  placed  upon 
the  net  premium  to  provide  for  this  item;  and, 
fourth,  the  company  may  make  profits  from  mis- 
cellaneous sources. 

The  death-rate  is  a  factor  which  fluctuates 
widely  from  year  to  year;  the  other  factors  also 
are  not  constant;  therefore  ordinary  prudence 
demands  that  the  dividend  return  should  always 
be  made  upon  conservative  lines;  and  an  overdis- 
tribution  of  surplus,  though  for  the  time  being 
attractive  to  policy-holders,  may  be  a  source  of 
great  future  peril.  The  maintenance  of  an  ample 
"surplus"  to  provide  for  all  future  contingencies 
is  wise  and  necessary.  The  "limitation  of  surplus" 


90  ADDRESSES  AND  PAPERS 

and  compulsory  methods  of  "dividend  distribu- 
tion," as  now  embodied  in  some  recent  legislation, 
are  wrong  in  principle  and  dangerous  in  practice. 

Policies.  The  principal  forms  of  policies  now 
issued  are  the  following:  — 

"Ordinary  life"  —  payable  at  death;  premiums 
payable  during  life.  This  policy  is  also  called  a 
"whole-life  policy." 

"Limited  payment  life"  —  payable  at  death; 
premiums  called  for  only  during  a  limited  period, 
such  as  "10-payment  life,"  "20-payment  life,"  etc. 

"Joint  life"  —  insuring  two  lives  (or  more), 
payable  to  the  survivor. 

"Term"  —  insurance  covering  a  limited  period 
of  time. 

"Endowment"  —  payable  at  the  end  of  a  given 
period,  or  at  prior  death. 

"Annuities"  —  providing  a  fixed  annual  sum 
payable  during  the  lifetime  of  the  annuitant. 

Investments.  This  is  a  most  important  part  of 
the  management  of  a  life  insurance  company.  The 
fact  that  every  premium  calculation  is  based  upon 
some  fixed  rate  of  interest  to  be  earned,  which  is 
determined  when  the  policy  is  issued,  and  which 
cannot  subsequently  be  changed,  and  the  fact, 
as  already  shown,  that  the  assets  of  a  company  are 
constantly  increasing,  make  the  investment  of  a 
company's  funds  a  difficult  task.  As  far  as  possible 
the  management  must  by  long  investments  protect 


THE  FUNDAMENTALS  91 

itself  against  a  future  decline  in  the  interest  return, 
and  it  must  constantly  be  in  the  market  for  invest- 
ments to  keep  up  with  the  constant  growth  in  its 
assets. 

An  intimate  knowledge  of  the  needs  and  limita- 
tions in  each  case  leads  one  company  to  seek  invest- 
ment in  local  real  estate  loans;  another  chooses 
mortgage  loans  in  all  parts  of  the  country;  another 
invests  in  railroad  securities,  etc.;  and  all  are 
simply  seeking  to  obtain  the  highest  interest  return 
with  the  maximum  of  safety. 

It  is  my  firm  belief  that  freedom  of  choice  in  the 
line  of  investment  to  be  chosen  should  be  given  to 
the  management  if  the  best  results  are  to  be 
obtained.  Compulsory  investment  in  any  particu- 
lar class  of  security,  or  in  any  designated  locality, 
destroys  efficiency  and  divides  responsibility.  The 
check  to  improper  practices  lies  in  simple  publicity 
properly  enforced. 

Taxation.  Life  insurance  companies  are  under 
the  control  and  direction  of  the  various  States  in 
which  they  do  business,  and  are  subject  to  such 
taxes  as  they  may  impose.  These  taxes,  license 
fees,  etc.,  paid  by  146  companies  in  1907,  amounted 
to  $6,741,046.  These  taxes  are  not  levied  for  the 
maintenance  of  the  insurance  departments;  they 
are  for  the  purpose  of  revenue.  The  Insurance 
Department  of  New  York  State  from  1860  to  1907 
has  received  in  taxes  from  companies  of  other 


92  ADDRESSES  AND  PAPERS 

States,  from  licenses,  etc.,  $2,349,829,  in  excess  of 
its  disbursements,  and  this  does  not  include  the 
taxes  paid  by  New  York  companies  to  the  Comp- 
troller of  this  State.  The  propriety  of  a  tax  on  life 
insurance  is  not  the  subject  before  us,  but  it  is 
important  that  policy-holders  in  participating 
companies  should  know  who  pays  the  tax.  It  is 
not  the  "company"  —  every  cent  of  tax  comes  out 
of  the  "loadings"  on  the  premiums,  and  leaves 
just  so  much  less  to  be  returned  to  the  insured  in 
the  form  of  a  dividend.  The  policy-holders  pay 
the  tax,  and  last  year  their  contribution  was 
$6,741,046. 

If  the  people  of  this  land  understood  this  more 
clearly  our  State  Legislatures  would  soon  find 
excessive  taxation  of  life  insurance  companies  un- 
popular as  well  as  economically  unwise. 

New  Business.  Every  company  is  losing  each 
year  by  death,  surrender,  maturity,  etc.,  a  certain 
amount  of  its  insurance,  and  such  losses  have  to  be 
replaced  by  new  business  jf  the  company  is  to  avoid 
a  decrease  in  its  insurance  in  force,  and  the  aim  of 
most  insurance  managers  has  been  to  increase  the 
size  of  their  companies. 

The  growing  demand  for  life  insurance  on  the 
part  of  the  people  of  our  land,  the  American  spirit 
of  expansion  and  development,  the  general  astute- 
ness and  activity  of  insurance  men,  have  led  to  a 
growth   in   American   life    insurance   which   has 


THE  FUNDAMENTALS  93 

attracted  the  attention  and  admiration  of  the  entire 
business  world. 

During  the  past  few  years  there  has  been  much 
investigation  into  this  growth  and  inquiry  as  to 
whether  this  new  business  has  been  secured  on 
sound  business  lines.  In  a  country  such  as  ours, 
which  is  still  in  its  period  of  development,  life 
insurance  is  an  economic  necessity  as  a  protection 
to  the  individual,  who  is  often  forced  by  the  condi- 
tions surrounding  him  to  engage  in  business  opera- 
tions of  an  uncertain  and  semi-speculative  charac- 
ter. Further,  it  must  be  remembered  that  life 
insurance  is  an  investment  which,  in  this  country 
at  least,  men  do  not  buy  unless  it  is  forced  upon 
their  attention. 

It  does  not  sell  itself,  although  many  theorists 
take  the  contrary  view.  It  must  be  advertised  and 
explained,  and  finally  presented  to  the  public  by 
industrious  and  intelligent  salesmen.  All  this 
means  expense. 

What  is  a  proper  cost  for  new  business?  In  other 
words,  what  proportion  of  the  company's  funds  is 
it  wise  to  expend  in  securing  new  insurance? 

Students  of  the  subject  of  life  insurance  have 
advanced  various  theories,  and  legislative  bodies 
have  passed  restrictive  laws  on  this  important  sub- 
ject, all  attempting  to  arrive  at  one  fixed,  immut- 
able rule,  which  may  be  properly  applied  to  all 
companies.   In  this  attempt  the  fundamental  fact 


94  ADDRESSES  AND  PAPERS 

has  been  lost  sight  of,  that  new  business  may  be  of 
greater  relative  value  to  one  company  than  to 
another,  and  because  of  the  many  elements  which 
go  to  make  up  the  complex  organization  of  any 
company  any  universal  rule  must  be  unfair  in  its 
application.  The  restrictive  law  which  works  sat- 
isfactorily in  the  case  of  one  company,  or  class  of 
companies,  is  bound  to  operate  to  the  disadvantage 
of  others.  To  determine  how  much  new  insurance 
a  company  needs,  or  what  it  can  afford  to  pay  for 
it,  one  must  have  an  intimate  knowledge  of  the 
condition  of  that  company,  and  the  extent  and 
method  of  growth  should  not  be  prescribed  by 
detailed  rules  of  general  application. 

When  one  speaks  of  the  value  of  new  business  to 
a  "  company,"  it  must  be  borne  in  mind  that  the 
company  consists  of  the  policy-holders,  and  what 
the  management  has  to  consider,  in  all  matters, 
is  the  effect  upon  the  interests  of  the  policy- 
holders which  must  be  conserved. 

Conclusion.  It  is  obviously  impracticable  to 
attempt  to  go  into  great  detail  in  a  popular  treat- 
ment of  this  subject.  I  am  simply  presenting  a  few 
fundamental  facts  regarding  our  business  which 
agents,  policy-holders,  and  the  public  at  large 
must  understand  if  we  are  to  have  fair  criticism 
of  insurance  methods  and  intelligent  action  in  the 
matter  of  legislation.  Prejudice  and  persecution 
can  only  be  overcome  by  a  campaign  of  education. 


THE  FUNDAMENTALS 


95 


No  interest  is  so  vast  and  none  so  important  to  the 
people  of  our  land  as  "  life  insurance  " ;  it  is  the  great 
economic  bulwark  of  our  nation,  and  more  than 
any  other  institution  promotes  saving  and  thrift, 
characteristics  which  unfortunately  are  none  too 
conspicuous  in  this  country.  It  is  entitled  to  the 
honor  and  respect  of  our  people.  It  should  not  be 
a  target  for  excessive  taxation,  nor  should  it  be 
checked  in  its  beneficent  work  by  unwise  and  hos- 
tile legislation. 


THE  LIFE  INSURANCE  SITUATION1 

The  new  insurance  law  of  New  York  State  has 
been  in  operation  long  enough  to  enable  one  to 
form  some  judgment  of  its  effect  upon  the  life 
insurance  business.  While  it  would  probably  be 
impracticable  for  this  year's  Legislature  to  con- 
sider any  radical  changes,  yet  it  is  to  be  hoped  that 
the  legislators  will  carefully  study  its  working,  in 
order  that  the  law  may  be  so  amended  later  on  as 
to  accomplish  the  desired  reforms  upon  sound  lines, 
and  with  the  least  possible  injury  to  the  vested 
interests,  which,  owing  their  existence  to  the  State, 
naturally  look  to  it  for  protection. 

In  all  legislation  of  so  radical  a  character,  the 
greatest  difficulty  arises  from  the  lack  of  uniform- 
ity in  the  legislation  of  the  various  States,  and  the 
consequent  injustice  which  is  done  to  domestic 
companies  by  laws  affecting  them  which  cannot  be 
made  to  cover  the  companies  of  other  States.  The 
New  York  companies  have  led  in  the  intelligent 
development  of  the  business,  and  the  State  can  ill 
afford  so  to  curtail  their  activities  that  they  cannot 
compete  successfully  with  rivals  working  under 
less  drastic  supervision  —  provided  always  that 
they  are  sufficiently  restrained  to  prevent  the  recur- 

1  Written  for  Putnam's  Magazine,  June,  1907. 


THE  LIFE  INSURANCE  SITUATION      97 

rence  of  past  abuses.  This  brings  us  to  the  vital 
question,  whether  mismanagement  and  extrava- 
gance can  be  effectually  checked  by  law,  and 
whether  we  are  not  now  going  too  far  in  our  ten- 
dency toward  regarding  legislative  action  as  a 
panacea  for  economic  ills  —  a  question  upon  which 
there  is  the  greatest  possible  divergence  of  opinion. 

The  subject  of  life  insurance  is  an  intricate  one, 
and  a  close  study  of  the  applied  science  leads  to  the 
conviction  that  theory  alone  is  not  enough  —  that 
in  practice  many  matters  must  be  taken  into 
account  which  to  the  theorist  seem  immaterial  but 
to  the  practical  underwriter  are  of  vital  impor- 
tance. Consequently,  legislative  reforms  cannot 
safely  be  based  upon  book-knowledge  alone,  or  the 
theories  of  so-called  experts  who  have  had  no 
experience  in  applying  their  theories  to  successful 
practice.  One  error  which  has  crept  into  almost  all 
reform  legislation  on  the  subject  of  life  insurance  is 
the  belief  that  what  is  good  in  theory  for  the  science 
of  life  insurance  in  general  must  necessarily  be 
good  for  each  and  every  company;  in  other  words, 
that  if  it  can  be  proven  that  a  certain  principle  is 
theoretically  correct,  it  can  be  safely  adopted  as  a 
universal  law  and  made  compulsory  upon  all  com- 
panies. 

The  attempt  closely  to  restrict  the  companies  in 
the  matter  of  surplus,  making  one  law  applicable 
to  all,  is  a  case  in  point.   The  advocates  of  this 


98  ADDRESSES  AND  PAPERS 

measure  lose  sight  of  the  fact  that  a  prudent  man- 
ager who  desires  to  protect  the  interest  of  his 
policy-holders  must  be  in  a  position  freely  to  decide 
how  large  a  surplus  or  contingent  fund  he  should 
reserve  for  the  requirements  of  his  own  company, 
basing  this  decision  on  his  own  knowledge  of  the 
stability  of  its  business,  its  probable  mortality,  the 
character  of  its  assets,  and  many  other  factors  in 
the  situation  which  he  alone  can  know  and  esti- 
mate, and  which  are  not  like  the  conditions  sur- 
rounding any  other  company,  even  of  the  same 
size  as  his  own.  This  is  one  subject  upon  which 
directors  and  managers  must  be  allowed  absolutely 
free  rein,  if  the  responsibility  of  success  or  failure  is 
to  rest  with  them.  Close  legislation  in  matters  of 
this  character  can  only  tend  to  divide  responsi- 
bility. 

Take,  also,  the  matter  of  administrative  expense, 
which  some  States  are  endeavoring  to  restrict  by 
law.  No  one  but  the  directors  of  a  company  can 
know  the  problems  which  confront  that  company, 
and  the  necessities  which  may  arise  for  securing 
officers  and  managers  of  great  constructive,  execu- 
tive ability,  to  meet  the  questions  which  are  press- 
ing. Ability,  wisdom,  and  experience  command 
their  price,  and  any  limit  in  salary  or  compensa- 
tion is  unwise,  and  dangerous  to  the  policy-holders. 
It  is  the  duty  of  the  directors  to  settle  this  ques- 
tion; and,  if  they  are  to  be  held  responsible  for 


THE  LIFE  INSURANCE  SITUATION     99 

results,  they  must  be  free  in  their  selection  of  men 
and  unhampered  in  the  matter  of  cost.  A  univer- 
sal restrictive  law  is  likely  to  lead  to  excessive  pay- 
ment to  mediocre  men  in  some  cases,  and  the 
securing  in  other  instances  of  incompetent  men  to 
solve  great  questions  because  sufficient  remun- 
eration cannot  be  offered.  The  only  safeguard 
against  extravagance  in  official  salaries  is  com- 
plete publicity. 

In  no  section  of  the  present  law  has  pure  theory 
in  life  insurance  been  so  aggressively  applied  as  in 
the  scheme  which  has  been  devised  for  the  govern- 
ment of  the  companies  by  the  policy-holders,  and 
for  stimulating  in  the  minds  of  the  policy-holders 
a  more  lively  interest  in  the  selection  of  their 
directors  by  a  popular  vote.  The  experience  of  the 
past  in  so-called  "mutual"  companies,  extending 
in  some  instances  over  a  period  of  sixty  years, 
was  ignored;  charter  provisions  which  had  worked 
well  for  the  policy-holders  in  some  mixed  stock 
companies  were  canceled  without  explanation;  the 
unproven  tenet  that  the  "mutual"  idea  was  the 
only  safe  one  was  accepted,  and  the  law  was  passed. 

Let  us  look,  for  a  moment,  at  what  one  might 
term  an  ideal  company,  properly  governed.  The 
affairs  of  such  a  company  should  be  under  the 
immediate  control  of  a  board  of  directors,  who 
should  hold  frequent  meetings.  Throughout  the 
investigation  in  this  State,  the  legislative  commit- 


100  ADDRESSES  AND  PAPERS 

tee  was  apparently  insistent  upon  the  idea  that 
directors  should  really  direct,  and  that  a  position 
of  such  importance  should  not  be  merely  honorary. 
Such  an  ideal  board  should  be  composed  of  men 
versed  in  the  various  departments  of  the  com- 
pany's work.  There  should  be  some  members 
familiar  with  the  insurance  branch  of  the  business; 
others  should  be  well  informed  as  to  securities 
proper  for  investment;  others  still  should  be  cap- 
able of  selecting  bond  and  mortgage  loans;  while  a 
certain  number  ought  to  be  qualified  to  pass  upon 
general  administrative  questions.  The  work  of 
such  a  board  would  have  to  be  done  through  com- 
mittees. These  committees  should  be  carefully 
selected  and  should  meet  at  frequent  intervals. 
Such  a  scheme  of  government  necessitates  the 
choosing  of  directors  who  reside  or  have  places  of 
business  near  the  home  office  of  the  company.  In 
the  case  of  a  New  York  company  they  must  be 
New  York  men  if  they  are  to  do  their  work  intelli- 
gently and  satisfactorily.  In  view  of  this  necessity 
(which  can  hardly  be  controverted,  unless  the 
board  of  directors  is  to  be  merely  an  honorary 
body)  we  encounter  at  once  the  main  reason  why 
the  policy-holders  at  large  are  necessarily  unfitted 
to  cast  a  direct  vote  for  their  directors.  Scattered 
as  they  are  over  the  entire  United  States,  and  in 
some  companies  over  the  entire  world,  the  policy- 
holders cannot  have  an  intelligent  knowledge  of 


THE  LIFE  INSURANCE  SITUATION    101 

the  proper  men  to  choose  for  such  important  posi- 
tions. They  could  select  representatives  from  their 
own  locality,  but  directors  so  selected  would  not  be 
able  to  fulfill  their  duties. 

That  some  such  choice  would  probably  be  made 
is  clearly  shown  by  last  year's  experience.  The 
policy-holders'  ticket  in  one  of  the  larger  companies 
contained  only  eleven  New  York  City  names  out 
of  thirty-six.  If  the  policy-holder  is  to  cast  a  direct 
vote,  to  whom  can  he  turn  for  knowledge  as  to 
candidates?  Recent  criticism,  some  of  it  coming 
from  the  framers  of  the  law,  would  seem  to  indi- 
cate that  it  is  highly  improper  for  any  one  con- 
nected with  the  company  to  engage  in  an  educa- 
tional campaign  in  favor  of  the  administration 
ticket.  The  opposition,  however,  through  the  press 
and  other  channels,  is  allowed  free  rein  in  its 
attempt  to  create  unrest  and  dissatisfaction.  Have 
the  framers  of  this  law  ever  stopped  to  contem- 
plate what  an  opportunity  is  here  given  for  attack 
by  unscrupulous  parties  with  ulterior  motives? 
The  delay  in  counting  the  ballots  received  under 
the  present  system  and  the  consequent  serious 
damage  to  the  company's  interests,  are  obvious 
objections  to  any  plan  where  so  many  methods  of 
voting  are  allowed.  Possibly  some  form  of  indirect 
voting  through  an  electoral  college  might  render 
the  mutual  plan  of  government  more  nearly  feasi- 
ble, but  this  suggestion  did  not  meet  the  approval 


102  ADDRESSES  AND  PAPERS 

of  the  legislative  committee.  It  is  well,  at  least,  to 
bear  in  mind  that  it  has  not  yet  been  proven  that  in 
practical  operation  the  "mutual"  plan  of  govern- 
ment is  either  safe  or  reliable. 

One  of  the  most  drastic  sections  of  the  new  law 
is  that  entitled  "Limitation  of  Expense."  The 
reckless  extravagance  of  the  companies  in  the  mad 
race  for  business  rendered  necessary  the  curtailing 
of  their  expenses,  and  the  result  is  a  statute  which 
not  only  limits  the  total  expenditures  of  each  com- 
pany, but  also  prescribes  how  much  may  be  spent 
in  the  procuring  of  new  business.  The  idea  is  a 
good  one,  but  in  its  operation  many  difficulties  are 
encountered.  The  law  is  so  framed  that  every 
agent  or  solicitor  having  the  company's  premium 
rate  before  him,  and  knowing  how  much  must  be 
expended  for  medical  examinations  and  inspec- 
tions, can  figure  out  exactly  the  maximum  first 
commission  which  the  company  can  pay,  and 
under  the  ordinary  laws  of  trade  is  not  satisfied 
until  the  company  has  agreed  to  give  him  that 
maximum.  No  account  can  be  taken  of  the  differ- 
ent value  of  similar  service  by  different  men,  the 
varying  difficulty  of  securing  business  in  different 
sections,  and  the  greater  worth  to  the  company  of 
the  carefully  selected  business  of  a  conscientious 
agent  as  compared  with  that  of  one  of  less  conser- 
vative character.  At  present  every  man  with 
whom  a  manager  endeavors  to  make  a  contract 


THE  LIFE  INSURANCE  SITUATION     103 

knows  what  the  company  can  pay,  and  demands 
the  full  commission  as  his  right.  The  metropolitan 
agent,  with  his  large  corps  of  solicitors  and  expen- 
sive organization,  who  produces  a  large  volume  of 
selected  business,  and  the  rural  solicitor  who  sends 
in  an  occasional  "risk,"  are  on  the  same  plane. 
The  law  has  gone  too  far.  Limitation  of  expense 
is  necessary  —  insurance  men  all  admit  it;  but 
when  it  has  been  decided  what  that  total  limitation 
shall  be,  it  should  be  left  to  the  managers  to  deter- 
mine how  the  money  shall  be  spent;  and  publicity 
should  be  compulsory  as  to  how  the  funds  are  used. 
This  provision  of  the  new  law  is  opposed  to  the 
fundamental  principle  that  the  conditions  existing 
in  each  company  are  different  from  those  of  every 
other  company,  and  that  the  managers  and  direct- 
ors alone  can  determine  the  best  channel  of  expen- 
diture to  produce  the  greatest  good  to  the  policy- 
holder. The  object  of  this  close  legislation  was  to 
prevent  extravagance  in  securing  new  business; 
the  legislators  lost  sight  of  the  fact  that  the  value 
of  new  business  is  dependent  upon  the  needs  and 
requirements  of  each  company,  and  that  what 
might  be  an  excessive  price  for  one  would  be  a 
reasonable  price  for  another  to  pay  for  the  same 
amount  of  business.  Much  of  the  business  of  the 
companies  is  secured  through  solicitors  who  work 
under  agents  and  have  no  direct  contract  with  the 
company.  These  agents  are  not  technically  limited 


104  ADDRESSES  AND  PAPERS 

as  to  what  they  may  pay  to  the  solicitor;  and  if  it 
seems  wise  to  them  to  forestall  some  of  their 
renewal  commissions,  and  pay  a  high  "brokerage" 
to  the  solicitor,  we  see  the  anomaly  under  the  new 
law  of  an  agent  being  able  to  pay  the  solicitor  a 
greater  first  commission  than  the  law  allows  the 
company  to  pay.  If  first  commissions  are  to  be 
rigidly  regulated,  the  law  should  be  so  modified 
as  to  cover  the  amount  received  by  the  solicitor. 
This  would  prevent  the  high  brokerages  which  are 
now  being  offered  by  the  representatives  of  some 
companies,  which  lead  to*  demoralization  in  the 
business  and  the  same  evils  of  "twisting"  and 
"rebating"  which  have  prevailed  in  the  past.  A 
limitation  in  total  expense,  together  with  absolute 
publicity  as  to  the  method  of  expenditure,  would 
provide  all  the  check  needed  at  the  present  time. 

In  figuring  the  item  of  total  expense  under  any 
law  of  limitation,  the  companies  should  be  allowed 
to  deduct  items  over  which  the  management  can 
have  no  control  —  legal  expense  incurred  in  defend- 
ing suits,  taxes,  expenses  of  state  examinations, 
etc.  The  item  of  taxes  alone  is  a  serious  matter, 
increasing  as  it  does  from  year  to  year.  In  1905 
the  life  companies  doing  business  in  New  York 
State  paid  out  for  taxes  $7,500,000. 

Following  the  above  suggestion,  we  come  to  the 
new  form  of  annual  report  now  demanded  by  this 
State.    The  general  result  of  any  year's  work  is 


THE  LIFE  INSURANCE  SITUATION     105 

supposed  to  be  shown  by  the  "Gain  and  Loss 
Exhibit"  as  contained  in  the  new  blanks.  This 
exhibit  has  one  hundred  and  twenty-five  different 
items,  giving  in  the  greatest  detail  the  transactions 
of  the  company  during  the  preceding  year.  These 
results,  as  shown  by  this  exhibit,  cannot  be  known 
to  the  public  until  several  months  after  the  date 
of  the  report,  as  they  appear  only  in  the  printed 
reports  of  the  Insurance  Commissioner.  Even  then, 
the  exhibit  is  so  complicated  and  technical  that  it 
is  useful  only  to  an  expert,  and  the  result  of  the 
year's  operations  can  be  determined  only  by  a 
careful  analysis.  Publicity,  to  avail,  must  be 
prompt  and  simple.  It  would  be  much  better,  in 
my  opinion,  to  do  away  with  many  of  the  questions 
in  the  present  blank,  which  call  for  an  immense 
amount  of  labor,  and  to  require  that,  early  in  each 
year,  not  later  than  March  1,  each  company  shall 
publish  in  the  newspapers  a  statement  of  its  busi- 
ness for  the  preceding  year,  following  a  prescribed 
form  to  be  provided  by  law.  This  statement,  to  be 
of  real  value,  should  show  the  receipts  and  dis- 
bursements in  some  detail,  the  amount  of  new 
business  secured,  the  cost  of  securing  it,  the 
amount  of  insurance  in  force  at  the  beginning  and 
end  of  the  year,  the  renewal  premium  income,  etc., 
so  that  almost  at  a  glance  the  public  could  see 
whether  or  not  the  company  was  making  substan- 
tial progress.   (At  present,  the  annually  advertised 


106  ADDRESSES  AND  PAPERS 

statements  of  the  companies,  not  being  governed 
by  law,  contain  only  those  items  which  redound  to 
the  credit  of  the  management.)  It  might  be  well, 
also,  to  require  that  a  further  and  more  complete 
report  should  be  mailed  to  every  policy-holder;  the 
cost  of  this  distribution  would  be  money  well 
expended  in  his  behalf.  Such  a  statement  should 
show  the  disbursements  in  considerable  detail,  so 
that  the  policy-holder  might  know  just  how  his 
money  had  been  expended. 

The  limitations  in  the  matter  of  investments,  the 
adoption  of  "standard  policies,"  the  requirement 
of  the  present  law  that  a  mutual  company  shall 
write  either  non-participating  or  participating 
business,  but  not  both,  are  restrictions  of  doubtful 
value,  and  are  inimical  to  the  interests  of  the  New 
York  companies,  as  they  place  them  at  a  serious 
disadvantage  in  competition  with  companies  of 
other  States. 

As  the  investigation  of  the  New  York  companies 
was  not  finished  till  December  31,  1905,  and  the 
new  law  was  rather  hastily  prepared  and  passed 
during  the  1906  session  of  the  Legislature,  it  is 
remarkable  that  its  general  provisions  should  be  so 
excellent  as  we  find  them.  The  above  criticisms  are 
made  in  the  hope  that,  carrying  out  the  general 
intent  of  the  statute,  it  may  in  time  be  so  modified 
as  to  work  less  injustice  to  the  New  York  compan- 
ies as  compared  with  companies  of  other  States, 


THE  LIFE  INSURANCE  SITUATION     107 

and  be  so  amended  as  to  allow  to  the  managers  of 
the  various  companies  somewhat  greater  latitude 
in  carrying  out  the  plans  of  development  which, 
from  their  intimate  knowledge  of  their  own  insti- 
tutions, they  feel  to  be  necessary.  The  general 
tendency  of  legislation  should,  in  my  opinion,  be 
less  toward  rigid  restriction  and  more  toward  com- 
pulsory, intelligible  publicity. 


THE  DISTRIBUTION  OF  SURPLUS  TO 
POLICY-HOLDERS 

AS  AFFECTED  BY  THE  INSURANCE  LAW 
OF  THE  STATE  OF  NEW  YORK1 

There  is  probably  no  branch  of  our  business  in 
regard  to  which  there  is  such  general  ignorance, 
or,  at  least,  so  great  a  prevalence  of  erroneous 
ideas,  as  on  this  subject  of  dividends.  This  arises 
largely  from  the  unfortunate  selection  of  the  word 
"dividends"  as  applied  to  life  insurance.  The 
original  meaning  of  the  term,  as  being  simply  a 
"divided  portion"  or  "allotment,"  has  been  lost 
sight  of  in  the  popular  mind,  and  we  all,  uncon- 
sciously, perhaps,  associate  it  primarily  with  that 
increment  of  profit  from  industrial  operations  or 
from  corporate  management  of  any  kind  which  is 
distributed  or  divided  among  shareholders  or  part- 
ners in  an  enterprise.  Between  that  form  of  divi- 
dend and  the  dividend  in  life  insurance  there  is 
no  analogy,  and  yet  most  arguments  upon  the  sub- 
ject —  and,  unfortunately,  most  legislation  —  is 
based  upon  the  supposition  that  both  of  these 
forms  of  dividends  are  sufficiently  similar  to  call 
for  the  application  of  the  same  rules  in  their  deter- 

1  Address  before  the  Association  of  Life  Insurance  Presidents, 
December  6,  1907. 


DISTRIBUTION  OF  SURPLUS  109 

mination  and  the  same  general  style  of  legislation 
in  their  regulation. 

We  must  dismiss  at  once  this  false  premise. 
In  a  "participating"  company  where  the  policy- 
holders "share  in  the  profit"  (a  most  unfortunate 
and  misleading  phrase),  the  simple  fact  is  that  the 
company  decides  upon  a  rate  of  premium,  known 
as  the  "tabular"  or  "office"  premium,  which  con- 
sists of  a  certain  amount  to  cover  the  current  cost 
of  insurance  and  provides  for  the  reserve  plus 
the  "loading"  or  "margin  for  expense."  This  last 
item  is  made  sufficiently  large  to  cover  all  contin- 
gencies, and  if  in  the  experience  of  the  company, 
as  demonstrated  by  its  record,  the  margin  or  load- 
ing is  greater  than  has  been  needed,  the  excess  or 
overcharge  on  each  office  premium  is  returned  to 
the  policy-holder. 

This  is  the  elementary  meaning  of  the  word 
"dividend"  as  used  in  life  insurance.  It  is  known 
to  all  insurance  men,  but  is  so  imperfectly  under- 
stood by  the  public  at  large  and  by  our  legislators 
that  too  great  stress  cannot  be  laid  upon  the  neces- 
sity of  clear  definition  at  the  very  commencement 
of  our  consideration  of  this  most  important  matter. 

Let  us  try  to  remember,  then,  that  the  "divi- 
dend" in  life  insurance  is  simply  a  return  to  the 
policy-holder  of  that  portion  of  his  premium  which 
the  experience  of  his  company  has  proven  to  be 
an  excess  over  the  amount  required  to  meet  all 


110  ADDRESSES  AND  PAPERS 

incurred  obligations  and  to  provide  for  probable 
future  requirements. 

What  are  the  sources  from  which  dividends 
arise?  First,  the  mortality  may  be  more  favor- 
able than  that  expected  under  the  table  upon  which 
the  premium  is  based;  second,  the  rate  of  interest 
earned  on  the  company's  assets  may  be  greater 
than  that  upon  which  the  calculation  has  been 
made;  third,  the  expenses  of  the  company  may  be 
less  than  the  "loading"  which  was  placed  upon  the 
net  premium  to  provide  for  this  item;  and,  fourth, 
the  company  may  make  profits  from  miscellaneous 
sources  which  accrue  to  the  benefit  of  the  policy- 
holder. 

Let  us  now  turn  to  the  provisions  of  the  New 
York  State  law  bearing  on  this  subject  as  contained 
in  section  83  of  the  present  statute.  The  first 
important  provision  is  that  life  insurance  compan- 
ies, notwithstanding  the  provisions  of  their  char- 
ters or  certificates  of  incorporation,  shall  provide 
in  every  policy  issued  after  the  1st  day  of  January, 
1907,  that  the  proportion  of  the  surplus  accruing 
upon  each  policy  shall  be  ascertained  and  distrib- 
uted annually,  and  not  otherwise. 

One  of  the  results  of  the  recent  investigation  was 
to  establish  in  the  minds  of  the  framers  of  this  law 
the  belief  that  deferred  dividends  must  be  prohib- 
ited as  being  opposed  to  the  best  interests  of  the 
policy-holder.  The  discussion  of  the  merits  of  this 


DISTRIBUTION  OF  SURPLUS  111 

question  is  not  before  us,  and  I  simply  speak  of  this 
matter  as  indicating  apparently  the  reason  why 
the  law  was  made  so  stringent  and  why  the  division 
of  surplus  was  limited  to  an  annual  division. 

Following  this  requirement  of  an  annual  distri- 
bution the  statute  then  proceeds  to  map  out  the 
plan  which  must  be  adopted.  It  provides  that  on 
the  31st  of  December  each  year,  or  as  soon  there- 
after as  may  be  practicable,  every  life  insurance 
company  shall  ascertain  the  surplus  earned  by  the 
corporation  during  the  year;  that,  after  setting 
aside  from  that  surplus  such  sums  as  may  be  re- 
quired for  the  payment  of  authorized  dividends 
upon  the  capital  stock  (if  any),  and  such  sums  as 
may  properly  be  allowed  for  the  account  of  exist- 
ing deferred  dividend  policies  and  for  a  contin- 
gency reserve  not  in  excess  of  the  amount  pre- 
scribed in  the  law,  the  remaining  surplus  shall 
then  be  equitably  apportioned  to  all  other  policies 
entitled  to  share  therein.  This,  in  brief,  means 
an  annual  analysis  of  the  company's  account  and 
a  distribution  of  dividends  based  thereon. 

We  must  remember  that  the  factors  which  make 
up  the  dividend  are  the  mortality  gain,  the  inter- 
est gain,  the  saving  in  expense,  and  miscellaneous 
profits.  The  annual  death  loss,  we  all  know,  is  a 
factor  which  fluctuates  widely  from  year  to  year, 
and  of  which  a  proper  estimate  can  only  be  gained 
by  studying  the  records  of  many  years.  The  same 


112  ADDRESSES  AND  PAPERS 

is  true,  to  a  certain  extent,  of  the  next  two  factors, 
—  the  rate  of  interest  earned  and  the  expenses  of 
the  company.  Miscellaneous  profits  vary  more 
widely  from  year  to  year  than  any  other  factor. 
Therefore,  if  a  company  were  to  adopt  the  plan  of 
basing  its  distribution  of  dividends  upon  the  actual 
results  of  the  preceding  year,  the  dividends  them- 
selves would  be  subject  to  the  widest  fluctuations. 
To  prevent  this  the  statute  provides  that  a  certain 
sum  may  be  set  aside  for  a  contingency  reserve, 
but  this  very  proper  provision  is,  in  a  way,  neu- 
tralized by  the  section  referred  to,  which  limits 
the  total  of  the  contingency  reserve.  There  is  in 
the  law  probably  no  section  so  absolutely  unwar- 
ranted and  uncalled  for  as  the  section  relating  to 
the  limitation  of  the  contingency  reserve,  known 
as  section  87.  It  is  unwise  and  most  dangerous. 
Had  it  been  passed  as  originally  drafted  its  effect 
upon  the  companies  in  this  year  of  financial  de- 
pression would  have  been  appalling  and  most 
alarming  to  the  policy-holder.  There  is  no  reason 
why  it  should  not  be  immediately  repealed  in  toto, 
and  it  is  the  duty  of  the  Legislature  to  undertake 
this  as  one  of  the  first  steps  toward  the  improve- 
ment of  the  law.  It  is  supposed  that,  by  laying 
aside  a  certain  amount  of  the  profits  for  the  con- 
tingency reserve,  the  fluctuating  factors  which 
make  up  the  dividend  may  be  compensated  for. 
Out  of  the  surplus  earned  during  the  year,  the 


DISTRIBUTION  OF  SURPLUS  113 

company  is  also,  before  the  distribution  of  surplus, 
allowed  to  deduct  such  sums  as  may  properly  be 
held  for  account  of  existing  deferred  dividend  poli- 
cies. The  treatment  of  deferred  dividends  in  each 
company  must  depend  absolutely  on  the  wording 
of  the  policy  contract,  and  in  many  instances  these 
deferred  dividend  policies  do  not  call  for  any  dis- 
tribution or  apportionment  until  the  end  of  the 
deferred  dividend  period.  How  can  a  company, 
then,  with  such  outstanding  policies  be  expected 
or  required  to  segregate  for  this  purpose  any 
amount  of  money  before  the  time  of  apportionment 
actually  arrives,  and  might  it  not  be  that  by  laying 
aside  such  a  sum  it  would  —  inf erentially,  at  least 
—  acknowledge  an  obligation  which  does  not  exist 
under  its  contracts?  This  objection  to  the  provi- 
sion of  the  law  naturally  does  not  apply  to  those 
companies  which,  even  on  the  deferred  dividend 
policies,  have  made  in  the  past  an  annual  distri- 
bution which,  though  not  paid,  has  been  held  as  a 
contingent  contract  liability. 

Even  with  these  reservations  already  referred 
to,  it  appears  that  it  is  the  intent  of  the  law  that 
the  dividends  shall  reflect  in  a  general  way  each 
year  the  result  of  the  operations  of  the  preceding 
year.  This  I  believe  to  be  bad  practice.  The 
period  under  observation  is  too  short.  If  a  conser- 
vative manager  is  to  provide  against  possible 
adverse  experience  in  future  years,  he  will  in  good 


114  ADDRESSES  AND  PAPERS 

years  distribute  only  a  small  proportion  of  his 
surplus,  holding  the  balance  for  the  years  which 
he  knows  will  surely  come  when  there  will  be  no 
gain  in  surplus  to  divide.  Every  insurance  man 
knows  that  if  he  wants  to  maintain  a  contented 
body  of  policy-holders,  uniformity  in  the  rate  of 
dividend  is  essential.  Extreme  annual  fluctuations 
would  do  more  to  alarm  his  clients  than  anything 
which  could  happen.  If  it  is  the  intent  of  the  law 
to  have  the  distribution  indicate  each  year  to  the 
policy-holder  the  result  of  the  preceding  year, 
what  are  we  to  do  after  a  year  like  1907?  The  law 
states  that  at  the  end  of  the  year  we  must  ascertain 
the  surplus  earned  and  then  proceed  to  divide  it. 
The  legislators  did  not  seem  to  regard  it  as  possible 
that  any  company  should  in  any  year  fail  to  make 
a  surplus,  or  was  it  their  intention  to  imply  that  if 
there  was  no  surplus  made  in  any  year  there  should 
be  no  dividend  paid  in  the  next  year?  To  many 
companies  this  becomes  a  vital  question  now,  as 
governing  our  action  next  year.  Were  the  period 
of  analysis  and  distribution  made  to  recur  every 
five  years,  the  average  of  those  years  would  do 
away  with  these  fluctuations.  This  is  the  British 
system.  If  we  are  to  have  annual  distributions, 
there  must  be  no  limitation  to  the  surplus  and  the 
greatest  latitude  given  to  the  management  in 
determining  what  it  is  wise  to  pay  and  what  it  is 
wise  to  hold  as  contingent  reserve  for  future  times 


DISTRIBUTION  OF  SURPLUS  115 

of  stress.  Companies  which  have  in  the  past  suc- 
cessfully paid  annual  cash  dividends  have  not  been 
restricted  by  law  on  this  subject  of  distribution. 

There  can  be  no  wise  legislation  on  this  subject, 
except  of  the  most  general  character.  If  the  law 
such  as  we  have  upon  our  statute  books  to-day  is 
adopted,  specific  in  its  requirements  and  universal 
in  its  application,  the  greatest  injustice  is  done 
to  the  policy-holders.  In  a  company  writing  par- 
ticipating policies  the  distribution  of  surplus  is 
the  one  item  which  above  all  others  must  be  left  to 
the  discretion  of  the  management,  —  that  is,  to  the 
officers  and  directors,  —  and  they  should  be  held 
responsible  for  the  wise  discharge  of  their  trust.  Is 
it  the  business  of  the  State  to  determine  what  divi- 
dends shall  be  paid?  If  so,  there  is  only  one  proper 
way  to  do  it,  and  that  is  to  have  the  Department 
of  Insurance  examine  each  company  separately 
and  distinctly  and  declare  its  dividends.  This  is 
carrying  state  supervision  to  a  point  which  we 
think  should  appeal  to  very  few  persons.  No  two 
companies  are  alike.  Probable  future  mortality, 
the  nature  of  the  assets,  the  character  and  age  of 
the  outstanding  insurance,  a  thousand  and  one 
internal  conditions  must  all  be  taken  into  consid- 
eration before  a  dividend  can  be  intelligently  and 
safely  declared.  These  factors  vary  in  the  various 
companies.  How  different  the  Armstrong  Law 
would  be  if  the  framers  of  it  had  only  borne  in 


116  ADDRESSES  AND  PAPERS 

mind  that  in  this  most  complex  business  of  ours 
each  company  must  work  out  its  own  development 
along  lines  adapted  to  its  peculiar  requirements 
and  based  upon  its  particular  needs.  The  form  of 
specific  and  detailed  legislation  which  is  forced 
upon  all  companies  alike  by  the  present  New  York 
law  has  reduced  insurance  management  to  a  dull 
and  uninteresting  level  of  mediocrity,  destructive 
of  growth  and  fatal  to  the  application  of  intelligent 
thought. 

But  this  is  not  the  worst  feature  of  the  legisla- 
tion, and  it  must  be  borne  in  mind  that  no  criticism 
of  the  law  will  be  listened  to  at  the  present  time 
which  is  made  from  the  standpoint  of  the  interest 
of  the  insurance  manager  in  his  honest  desire  to 
develop  his  business.  If  the  law  is  to  be  criticized 
or  changed,  it  must  be  shown  that  it  is  bad  for  the 
policy-holder.  It  is  rather  early  to  observe  the 
actual  effect  of  this  particular  statute  regarding 
dividends  as  affecting  the  interests  of  policy- 
holders, but  a  few  tendencies  may  already  be  dis- 
covered as  a  result  of  the  new  law. 

The  idea  has  been  forced  upon  insurance  man- 
agers that  the  annual  distribution  is  to  be  the  index 
of  progress,  and  the  temptation  is  tremendously 
strong  to  pay  a  large  annual  dividend  whether  such 
a  course  is  warranted  or  not.  Except  in  so  far  as 
the  law  directs  that  the  dividends  shall  be  "  equit- 
ably" distributed  to  the  policy-holders,  it  does  not 


DISTRIBUTION  OF  SURPLUS  117 

specifically  state  that  no  dividend  can  be  paid  on 
a  policy  which  has  not  contributed  to  the  earnings 
of  that  dividend,  yet  I  believe  that  this  was  the 
intent  of  the  law.  Already,  however,  we  see  that 
the  competition  between  the  various  companies  is 
to  be  based  largely  upon  the  size  of  the  annual 
dividend  paid,  and  it  is  probable  that  the  man- 
agers of  insurance  companies  will  go  so  far  as  even 
to  pay  a  dividend  upon  the  first  premium.  No  one 
for  a  moment  asserts  that  this  dividend  is  earned, 
because  under  our  new  law  the  mortality  gain 
from  the  new  business  and  the  entire  loading  of  the 
first  premium  are  used  for  the  expense  of  securing 
new  business.  I  have  yet  to  hear  of  any  actuary 
who  defends  the  payment  of  such  a  dividend  on 
the  first  premium,  except  on  the  general  ground 
that  the  competition  for  business  demands  it. 
Companies  which  have  declared  such  dividends  in 
the  past  have  made  the  payment  only  to  policy- 
holders who  have  paid  the  second  premium;  but, 
under  the  present  law,  the  dividend,  if  declared, 
must  be  paid  even  if  the  policy  lapses.  In  this  com- 
petition, based  upon  the  size  of  the  annual  dividend, 
and  in  this  payment  of  a  dividend  upon  the  first 
premium  (which  I  believe  we  must  all  admit  is 
not  earned),  I  think  conservative  managers  of  life 
insurance  companies  may  see  the  beginning  of  a 
tendency  resulting  absolutely  from  this  new  law 
which  is  most  dangerous  for  the  welfare  of  the 


118  ADDRESSES  AND  PAPERS 

policy-holder.  No  one  is  a  greater  believer  than 
I  in  the  proper  distribution  by  a  strong  company 
of  a  large  dividend  to  its  policy-holders,  but  sup- 
pose a  company  finds  itself  becoming  somewhat 
weakened  and  feels  that  it  must  have  new  business 
in  order  to  infuse  new  life  into  the  corporation,  how 
great  the  temptation  will  be  under  such  conditions 
to  pay  a  large  dividend  for  a  series  of  years,  even  if 
it  is  not  earned,  in  order  to  create  in  the  mind  of 
the  public  the  idea  that  the  company  is  making 
successful  progress;  and  this  annual  dividend  will 
be  studied  more  carefully  by  the  policy-holder  than 
any  public  statement  of  the  financial  condition  of 
the  company  in  the  insurance  reports. 

This  tendency  is  likely  to  lead  to  recklessness  of 
management  more  serious  in  its  consequences  to 
policy-holders  than  any  evil  which  we  have  seen  in 
the  business  for  the  last  twenty-five  years.  The 
actual  effect  of  extravagance  in  dividend  payments 
has  been  felt  of  late  in  some  English  and  Scotch 
companies,  and  it  is  already  realized  in  Great 
Britain  that  large  dividends,  as  a  result  of  keen 
competition,  may  do  an  irreparable  injury  to  the 
companies.  I  have  offered  this  objection  to  some 
of  the  defenders  of  the  present  insurance  law,  and 
the  reply  is  that  if  such  dividends  are  paid  the 
gain  and  loss  exhibit  will  indicate  clearly  to  the 
policy-holder  the  tendency  of  the  company.  My 
answer  to  this  is  that  the  gain  and  loss  exhibit, 


DISTRIBUTION  OF  SURPLUS  119 

with  its  multitudinous  and  complicated  questions, 
does  not  present  to  the  public  a  statement  which 
can  be  comprehended,  and  that  from  such  a  mass  of 
figures  expert  accountants  with  ingenious  minds 
can  deduce  almost  any  conclusion  which  they  de- 
sire by  specious  reasoning  and  by  misleading  ratios. 
In  my  opinion,  all  that  we  need  in  the  regulation 
of  this  dividend  question,  which  carries  with  it  the 
question  of  contingency  reserve,  is  absolute  and 
simple  publicity,  with  entire  discretion  given  to 
the  managers  of  the  companies  as  to  how  much 
shall  be  distributed.  I  believe  that  the  distribution 
should  not  be  compulsory  each  year,  but  that  it 
should  be  left  to  the  management  to  make  their 
distribution  at  regular  intervals  which  they  may 
select,  —  not,  however,  to  exceed  five  years. 

After  all,  the  question  of  dividends  is  simply 
this:  the  company  starts  with  a  certain  surplus  at 
the  beginning  of  the  year,  its  business  is  conducted 
throughout  the  year,  and  at  the  end  of  that  time 
its  assets  and  liabilities  are  calculated.  A  certain 
surplus  then  remains.  The  company  has  either 
gained  or  lost  surplus  during  the  year.  It  makes 
little  or  no  difference  from  what  source  it  has  been 
derived,  except  as  a  careful  study  of  those  sources 
shall  aid  the  managers  in  determining  what  divi- 
sion is  wise.  The  division,  whether  it  be  made 
annually  or  every  five  years,  should  only  be  arrived 
at  after  a  careful  study  of  this  simple  statement. 


120  ADDRESSES  AND  PAPERS 

Publicity,  to  be  effective,  must  be  simple  and  easily 
understood.  The  present  gain  and  loss  exhibit, 
while  apparently  offering  the  greatest  publicity 
by  reason  of  its  detail,  is  of  no  earthly  use  to  any 
one  but  an  expert  actuarial  accountant. 

The  provisions  of  the  law  regarding  the  method 
in  which  the  owner  of  the  policy  may  receive  the 
dividends  or  apply  them  for  the  reduction  of  his 
premium  payments,  etc.,  are  not  particularly  ob- 
jectionable and  require  no  special  comment. 

The  next  provision  of  this  section  is  as  follows:  — 

The  dividends  declared  as  aforesaid  in  the  case  of  a 
policy  issued  on  or  after  the  first  day  of  January,  1907, 
shall  be  payable  respectively  either  upon  the  anniver- 
sary of  the  policy  next  after  said  thirty-first  day  of 
December  or  upon  a  day  certain  in  the  year  following 
said  date,  according  to  the  rules  of  the  corporation  or 
the  terms  of  the  policy,  and  upon  the  sole  condition 
that  the  premium  payments  for  the  policy  year  current 
upon  the  thirty-first  day  of  December  shall  have  been 
completed. 

In  view  of  the  fact  that  the  accounts  of  the  com- 
pany cannot  be  properly  analyzed  immediately 
after  the  31st  day  of  December,  it  would,  if  this 
section  were  to  be  strictly  interpreted,  become  nec- 
essary to  defer  the  payments  of  dividends  to  those 
policy-holders  whose  premiums  become  due  in 
January,  February,  or  March  until  some  subse- 
quent fixed  date  in  the  year.  This  would  be  con- 
trary to  all  past  practice,  and  consequently  con- 


DISTRIBUTION  OF  SURPLUS  121 

fusing  to  the  policy-holder,  who  has  been  educated 
to  expect  that  with  the  notice  of  his  premium  on  a 
participating  policy  he  will  also  receive  advice  of 
the  amount  of  the  dividend. 

While  there  is  some  confusion  as  to  what  the  rul- 
ing of  the  Insurance  Department  has  been  upon 
this  matter,  it  seems  to  be  generally  conceded  that 
some  sort  of  an  estimate  may  be  made  to  cover  the 
case  of  the  policies  above  referred  to,  so  that  in 
every  instance  dividends  may  be  made  payable 
upon  the  anniversary  of  the  policy,  which  is  as  it 
should  be.  I  think  that  the  authorities  are  doing 
all  in  their  power  to  correct  the  confusion  in  this 
part  of  the  section,  but  it  is  only  proper  to  call 
attention  to  it  as  indicating  the  inaccuracy  of  the 
law  and  the  necessity  for  its  prompt  revision. 

A  method  adopted  by  many  companies  in  the 
past  with  success  has  been  to  analyze  the  accounts 
as  soon  as  possible  after  December  31;  to  then 
determine  the  total  amount  of  dividends  to  be 
paid;  and,  as  a  final  step,  to  allot  these  dividends 
to  policies  whose  anniversaries  occur  from  May  1 
following  and  during  the  succeeding  twelve  months. 

Before  closing,  there  is  one  matter  indirectly 
bearing  upon  this  general  question  of  dividends 
which  should  not  be  passed  without  notice. 

The  law  provides  that  the  part  of  the  surplus  set 
aside  for  dividends  shall  be  apportioned  "equit- 
ably "  to  all  other  policies  entitled  to  share  therein. 


122  ADDRESSES  AND  PAPERS 

In  the  general  expenses  of  the  companies,  there 
is  the  item  of  state  taxes  which  is  becoming  one  of 
greater  importance  each  year,  as  it  is  being  in- 
creased by  local  legislation  in  our  various  States. 
This  tax  bears  a  varying  ratio  in  the  different 
States  to  the  total  premiums  received  and  in  some 
instances  is  becoming  almost  prohibitive.  This  is 
a  question  which  must  sooner  or  later  be  seriously 
considered  by  life  insurance  managers  in  strictly 
complying  with  the  terms  of  section  83.  Is  it 
proper  to  charge  the  total  state  taxes  against  the 
total  premium  receipts,  thereby  affecting  the  divi- 
dend distribution  which  the  law  says  must  be 
equitable? 

If  a  certain  State  or  locality  imposes  a  tax  upon 
the  premium  receipts  of  that  locality,  is  it  equit- 
able and  fair  that  that  tax  should  be  paid  by  the 
policy-holders  in  general?  Would  it  not  be  more 
fair  and  more  equitable  to  allot  and  apportion  the 
dividends  without  reference  to  the  tax  paid  and 
then  to  deduct  the  tax  in  each  instance  from  the 
dividend  declared?  By  this  method  the  policy- 
holders of  each  State  would  pay  the  tax  which  their 
own  representatives  imposed  and  the  burden  would 
rest  where  it  fairly  belongs. 

The  educational  result  of  such  a  line  of  action 
in  showing  to  policy-holders  that  they  themselves 
pay  the  taxes  out  of  their  premiums  would  be  of 
incalculable  benefit  to  the  policy-holders  them- 


DISTRIBUTION  OF  SURPLUS  123 

selves,  for,  while  during  the  present  period  of 
reform,  economies  are  demanded  all  along  the  line, 
the  only  item  of  expense  which  shows  an  increase 
is  the  tax  paid  for  the  right  of  transacting  business. 
In  the  foregoing  I  have  limited  myself  to  a  con- 
sideration of  the  section  of  the  New  York  law 
relating  to  distribution  of  surplus.  Many  of  the 
criticisms  could  be  properly  directed  against  the 
entire  Armstrong  Law  and  against  the  present 
trend  of  insurance  legislation  in  the  United  States. 
It  is  all  too  specific,  and  goes  into  too  much  detail. 
In  the  desire  to  check  evil  the  entire  machinery  of 
life  insurance  has  been  thrown  out  of  adjustment. 
The  varied  requirements  and  needs  of  the  different 
companies  have  not  been  taken  into  considera- 
tion, and  all,  with  greater  or  less  degree,  have  been 
injured  by  uniform  legislation.  When  I  say  the 
companies  have  been  injured,  I  mean  the  policy- 
holders. Our  business  in  its  growth  and  prog- 
ress has  been  checked.  This  is  a  national  calam- 
ity. A  young,  vigorous,  progressive,  speculative 
nation  like  ours  needs  life  insurance  upon  which  it 
may  depend,  especially  in  times  like  these  through 
which  we  are  now  passing;  and,  although  the  idea 
at  the  moment  is  somewhat  unpopular,  I  am  of  the 
belief  that  the  life  insurance  official  who  upon 
proper  lines  increases  the  size  of  his  company,  and 
by  aggressiveness  and  skill  through  an  able  body  of 
agents  educates  the  American  people  to  a  belief  in 


124  ADDRESSES  AND  PAPERS 

the  beneficence  of  life  insurance,  is  not,  and  should 
not  be,  in  the  eyes  of  the  law,  a  culprit  and  crim- 
inal. Our  law  defines  exactly  how  insurance  may 
properly  be  written,  and  then  makes  it  a  mis- 
demeanor to  write  too  much  of  it.  How  can  a  life 
insurance  president  map  out  any  scheme  of  virile 
and  healthy  progression  when  at  every  turn  he 
finds  himself  confronted  by  barriers  which  destroy 
all  individuality  of  thought  and  originality  of  plan? 
Life  insurance  to-day  is  like  an  automatic  slot 
machine,  requiring  no  management  and  no  brains. 
Uniform  standard  policies,  uniform  rates  of  com- 
mission to  agents  where  the  limit  is  known  to  all 
(good  and  bad  receiving  the  same  compensation), 
limitation  in  investment,  a  cumbersome  and  un- 
workable system  of  election,  limitation  in  the 
amount  of  insurance  which  may  be  written,  limi- 
tation in  the  protection  of  the  policy-holder  by 
a  proper  contingent  fund,  every  encouragement 
given  to  the  payment  of  too  large  dividends,  the 
granting  of  wide  powers  of  discretion  to  the  Com- 
missioner of  Insurance  (a  most  dangerous  condi- 
tion, unless  that  office  be  filled  by  a  man  of  rare 
knowledge  and  absolute  singleness  of  purpose),  — 
these  are  some  of  the  fetters  which  hamper  us  now 
in  the  management  of  the  trust  confided  to  our 
care.  The  time  is  near  at  hand  when  we,  the  cus- 
todians of  the  great  life  insurance  interests  of  this 
land,  must,  for  the  salvation  of  our  business  and 


DISTRIBUTION  OF  SURPLUS 


125 


the  protection  of  our  policy-holders,  convince  the 
people  of  this  State  and  their  representatives  of 
the  unwisdom  of  the  present  scheme  of  insurance 
regulation.  When  this  has  been  done,  let  us  hope 
that  new  legislation  will  be  on  the  line  of  strict 
accountability  on  the  part  of  insurance  officers 
and  directors  for  honesty  in  the  conduct  of  the 
business;  that  the  new  laws  will  enforce  simple 
and  intelligible  publicity;  that  in  details  of  oper- 
ation the  power  of  decision  and  responsibility 
therefor  will  be  vested  in  the  management;  and 
above  all,  that  the  new  laws  will  encourage  and 
promote  the  growth  and  development  of  this  most 
necessary  and  beneficent  institution  of  life  insur- 
ance. 


GOVERNMENT  INVESTIGATION  AND 
REGULATION1 

Ever  since  leaving  college  I  have  followed  rather 
closely  the  trend  of  university  thought,  particularly 
in  regard  to  governmental  investigation  and  regu- 
lation of  business  interests  in  this  country,  and  I 
am  pleased  to  notice  the  increased  interest  which  is 
being  shown  each  year  by  our  students  in  the  prac- 
tical questions  of  American  commercial  life. 

How  far  it  is  wise  for  the  State,  or  the  Nation,  to 
go  in  matters  of  this  sort  is  a  question  which  is 
bound  to  become  one  of  more  serious  moment  each 
year,  and  the  student  of  our  financial  problems 
must  approach  this  subject  with  a  mind  absolutely 
free  from  all  prejudice,  if  he  wishes  to  thoroughly 
appreciate  and  understand  the  effects  of  govern- 
mental investigation  and  regulation. 

In  considering  any  subject  of  this  character,  the 
advantages  or  disadvantages  of  any  particular 
system  are  perhaps  best  shown  by  a  concrete  exam- 
ple, and  we  have  had  before  us  recently  in  this 
State  an  illustration,  which  is  perhaps  without 
parallel  in  the  history  of  this  country. 

A  brief  review  of  the  investigation  of  life  insur- 
ance companies  by  the  Senate  and  Assembly  of 

1  Address  delivered  at  Cornell  University,  May  16,  1908. 


GOVERNMENTAL  REGULATION        127 

this  State  and  a  cursory  examination  of  the  law 
which  resulted  from  this  investigation  will  be 
profitable. 

In  July,  1905,  a  Joint  Committee  of  the  Senate 
and  Assembly  was  appointed  to  investigate  the 
life  insurance  companies  doing  business  in  this 
State,  and  to  recommend  to  the  Legislature  a  law 
for  their  proper  regulation  and  supervision.  The 
committee  organized  on  August  1,  1905,  and  held 
public  hearings  from  September  1,  1905,  to  Decem- 
ber 30,  1905,  a  period  of  only  about  three  months 
and  one  half.  I  wish  to  emphasize  these  dates.  On 
February  22,  1906,  less  than  two  months  after  the 
closing  of  the  public  hearings,  a  voluminous  report 
was  submitted  to  the  Legislature,  which  report 
was  concluded  by  a  bill,  introduced  on  February 
22  in  the  Assembly,  which  was  at  once  referred  to 
the  Committee  on  Insurance.  In  its  report  the 
Committee  states  that  it  was  found  impossible 
to  submit  to  a  thorough  examination  companies 
chartered  outside  of  the  State,  or  to  embrace  within 
its  investigation  all  classes  of  domestic  life  insur- 
ance companies;  that  their  attention  was  confined 
to  companies  organized  within  the  State  issuing 
policies  on  a  level  premium  basis,  and  even  in  this 
limited  class  such  were  the  variety  and  perplexity 
of  the  subjects  requiring  consideration  that  the 
examination  of  the  affairs  of  any  one  company 
could  not  be  made  exhaustive. 


128  ADDRESSES  AND  PAPERS 

The  present  law,  which  is  the  result  of  this 
investigation,  can  be  only  understood  and  appreci- 
ated, if  we  firmly  establish  in  our  minds  the  fact 
that  the  investigation  was  incomplete  and  neces- 
sarily cursory  by  reason  of  the  short  space  of  time 
devoted  to  it,  and  that  it  did  not  undertake  a  com- 
prehensive investigation  of  the  life  insurance  of  the 
country.  No  time  whatever  was  devoted  by  the 
committee  to  the  investigation  of  life  insurance 
methods  in  other  countries.  The  committee  did 
not  consist  of  experts  in  life  insurance  affairs;  and 
its  members,  prior  to  the  investigation,  did  not 
claim  to  have  a  knowledge  of  the  intricacies  of  the 
life  insurance  system.  The  committee  had,  as  its 
expert  adviser,  one  consulting  actuary,  but  no 
practical  life  insurance  manager. 

Remember  especially  that  the  entire  period  cov- 
ered by  the  investigation  was  only  three  months 
and  one  half,  and  that  less  than  two  months  were 
subsequently  given  to  a  careful  review  of  the  infor- 
mation gained  and  the  codification  of  the  new  law. 
If  we  bear  these  facts  in  mind,  we  can  easily  under- 
stand the  crudeness  of  the  present  law,  and  can 
readily  excuse  its  inconsistencies  and  can  see  the 
reason  why,  in  many  particulars,  it  is  so  ill-suited 
to  the  practical  requirements  of  our  business. 

The  investigation  developed  in  certain  quarters 
revelations  of  a  somewhat  alarming  character,  and 
necessarily  the  objectionable  features  of  the  busi- 


GOVERNMENTAL  REGULATION        129 

ness  which  were  brought  to  light  had  to  be  followed 
by  the  committee  to  the  bitter  end.  The  result  was 
that  little  time  was  devoted  by  the  committee  to 
a  general  investigation  of  life  insurance  methods 
and  policies,  but  the  great  bulk  of  the  time  was 
necessarily  consumed  in  a  close  inquiry  into  specific 
methods  which  were  open  to  criticism.  These  rev- 
elations, of  course,  astonished  the  public  in  gen- 
eral, and  became  a  fruitful  source  of  sensational 
articles  in  the  press.  As  a  natural  result,  public 
indignation  was  aroused  and  a  strong  public  senti- 
ment was  created  against  life  insurance  companies, 
so  that,  when  the  investigation  was  concluded,  the 
public  mind  was  then  in  such  a  state  that  it  de- 
manded immediate  and  drastic  legislation,  and 
public  clamor  became  a  powerful  factor  in  the 
subsequent  legislative  action. 

As  already  stated,  the  proposed  law  was  intro- 
duced in  the  Legislature  on  February  22.  In  April 
the  law  was  passed  —  eight  months  was,  therefore, 
the  total  length  of  time  consumed  in  the  investiga- 
tion of  life  insurance  companies,  in  the  framing  of 
a  proper,  revised  statute,  and  in  its  final  adoption. 

When  we  consider  the  revolutionary  character 
of  the  present  insurance  law,  the  scope  of  its  appli- 
cation, and  the  amount  of  detail  which  is  covered 
in  it,  one  can  hardly  believe  that  it  is  possible  that 
such  a  vast  subject  could  have  been  thoroughly 
and  properly  covered  in  so  brief  a  period. 


130  ADDRESSES  AND  PAPERS 

This  is  the  history  of  the  preliminary  steps  which 
led  to  the  passage  of  the  present  insurance  law. 

Before  we  pass  to  any  analysis  of  the  law  I  wish 
to  call  your  attention  to  a  recommendation  in- 
cluded in  the  report  of  the  Joint  Committee,  which 
is  full  of  wisdom  and  which  would  have  been  a 
proper  basis  for  legislation  on  this  most  important 
subject. 

The  committee  says  in  its  report:  — 

The  Legislature  cannot  undertake  the  management 
of  the  business.  In  seeking  to  secure  economical  admin- 
istration, it  should  not  overstep  the  line  which  divides 
suitable  state  supervision  from  an  impracticable  effort 
to  prescribe  details.  The  Legislature  should  aim  to 
permit  freedom  of  management  subject  to  general 
regulations  and  complete  publicity. 

This  recommendation  should  be  emphasized,  as 
it  was  evidently  inserted  in  the  report  as  a  check 
to  the  existing  public  clamor,  which  the  commit- 
tee recognized,  but  unfortunately,  in  framing  the 
statute,  the  principles  laid  down  in  this  statement 
were,  in  many  instances,  ignored,  or  forgotten. 

In  reviewing  the  law  I  wish  it  to  be  distinctly 
understood  that  I  do  not  offer  my  remarks  at  all 
in  a  sense  of  carping  criticism  of  the  statute,  nor  do 
I  for  a  moment  desire  to  attribute  to  the  committee, 
or  the  framers  of  the  law,  any  but  proper  motives. 

As  I  view  the  circumstances  which  led  up  to  the 
legislation,  and  as  I  consider  the  very  brief  time 


GOVERNMENTAL  REGULATION        131 

which  was  given  to  the  consideration  of  the  sub- 
ject, I  am  amazed,  not  at  the  crudeness  and  incon- 
sistency of  the  law,  but  at  its  completeness.  It  is 
not  proper,  however,  to  pass  over  in  silence  its 
many  defects,  which  were  apparent  to  insurance 
managers  before  it  was  passed,  and  which  now,  in 
view  of  the  practical  operations  of  the  last  year 
and  one  half,  have  been  proven  to  be  unwise  and 
in  some  instances  pernicious. 

I  do  not  feel  that  within  the  time  at  my  disposal 
I  can  enter  into  any  detailed  explanation  of  the 
present  law,  but  will  simply  call  your  attention 
briefly  to  one  or  two  of  its  features  which  should  be 
understood. 

The  most  important  section  is  that  relating  to 
the  "limitation  of  expense."  This  limits  the  com- 
pany's expense  on  new  business  to  a  fixed  sum 
based  upon  the  margin  of  expense  provided  by  the 
first  premium,  plus  a  supposed  mortality  gain  from 
the  selection  of  new  lives.  The  expenses  which  are 
included  in  the  category  of  first  year's  expenses  are 
the  medical  fees,  cost  of  inspections  of  risks,  com- 
missions and  agency  advances.  After  the  first  year 
the  company  is  limited  to  a  renewal  commission 
of  a  fixed  amount  for  a  fixed  number  of  years  and 
any  excess  above  these  provisions  is  a  misdemeanor 
under  the  law.  No  statute  governing  any  business 
that  has  ever  fallen  under  my  observation  is  more 
detailed  or  more  drastic  than  this  particular  sec- 


132  ADDRESSES  AND  PAPERS 

tion  97.  It  absolutely  defines  what  money  may  be 
spent  for  the  procuring  of  new  business,  and  for  its 
care  after  it  has  been  placed  upon  the  company's 
books.  It  permits  no  arrangement  with  an  agent 
whereby  the  compensation  may  be  based  upon  his 
success.  It  advertises  to  every  man  in  the  business 
the  maximum  amount  which  the  company  may 
pay  and  makes  it  impossible  for  an  insurance 
manager  to  economically  hire  his  men.  It  is  abso- 
lutely and  fundamentally  opposed  to  the  recom- 
mendation of  the  committee  which  has  already 
been  quoted,  namely,  "that  the  Legislature  should 
aim  to  permit  freedom  of  management,  subject  to 
general  regulation." 

This  section  has  perhaps  been  more  disastrous 
in  its  effects  than  any  other  section  contained  in 
the  revised  statute.  The  object  of  the  section  was 
manifestly  proper  —  that  is,  to  prohibit  extrava- 
gance and  to  curtail  reckless  expenditure.  This  it 
may  have  done,  but  it  has  incidentally  killed  all 
individuality  of  method  and  all  elasticity  in  our 
business  system.  It  has  taken  the  life  out  of  the 
business  and  wrecked  the  agency  organizations  of 
the  companies.  This  statute  absolutely  overlooks 
the  fact  that  the  various  companies  are  surrounded 
by  different  conditions  and  that  no  universal  rule 
of  detailed  expense  limitation  can  be  devised  which 
will  be  fairly  applicable  to  all  companies. 

The  fundamental  ideas  of  business  growth  and 


GOVERNMENTAL  REGULATION        133 

development  are  assailed  and  overthrown  in  their 
underlying  principles  by  this  section.  It  is  based 
upon  theory  only,  and  not  upon  any  practical 
experience  in  our  business. 

It  would  be  interesting  to  study  minutely  the 
effect  of  this  particular  feature  of  the  law  upon  the 
business  of  the  companies,  but  unfortunately  we 
have  not  time  at  the  moment  for  such  a  detailed 
analysis. 

Section  87,  providing  a  "limitation  of  the  sur- 
plus" of  the  companies  and  compelling  them  to 
distribute  to  their  policy-holders  all  profits  above 
a  certain  limited  surplus,  is  another  provision  of 
the  law  which  is  based  upon  unsound  reasoning. 
This  section,  in  particular,  was  assailed  at  the  time 
of  the  public  hearing,  before  the  bill  was  adopted, 
but  it  was  finally  passed  in  an  amended  form.  It 
makes  it  a  misdemeanor  for  a  company  to  accu- 
mulate surplus  above  a  given  figure.  It  takes  away 
from  the  management  the  ultimate  judgment  as  to 
how  much  or  how  little  of  the  company's  profits 
shall  be  laid  aside  as  a  safety  fund  for  the  future. 
Indirectly  it  must  free  the  directors  and  managers 
of  life  insurance  companies  from  the  responsibility 
which  should  be  theirs  in  a  careful  and  conserva- 
tive safeguarding  of  the  interests  of  their  institu- 
tion. 

Closely  allied  to  this  section  is  section  83,  which 
has  to  do  with  the  "distribution  of  the  surplus"  to 


134  ADDRESSES  AND  PAPERS 

the  policy-holders.  This  particular  section  should 
never  have  been  adopted  until  it  had  been  care- 
fully gone  over  by  a  committee  of  practical  life 
insurance  actuaries,  and  a  proper  law  upon  the 
subject  drafted  by  such  a  committee.  The  object 
of  this  particular  section  was  to  insure  to  the  policy- 
holder his  full  and  proper  share  each  year  of  the 
surplus  earnings  of  the  company.  This  is  not 
accomplished  by  the  present  law.  It  is  based  upon 
an  imperfect  knowledge  of  the  nature  of  dividends 
in  life  insurance  and  their  true  meaning.  It  is 
unwieldy  and  cumbersome  in  its  operation,  and  its 
tendency  is  toward  competition  in  the  line  of 
extreme  dividends,  which  in  the  case  of  weak  com- 
panies may  become  in  the  future  a  source  of  posi- 
tive peril  to  the  policy-holders. 

The  investigation  brought  to  light  several  trans- 
actions in  the  matter  of  "investments"  which 
were  open  to  criticism,  the  result  of  which  was  that 
section  100  was  inserted  in  the  law  governing  the 
matter  of  investment. 

All  investments  in  stocks  are  now  prohibited  by 
law,  and  the  companies  are  compelled,  within  five 
years  from  the  31st  of  December,  1906,  to  sell  all 
of  their  stocks.  There  is  a  grave  question  as  to 
the  constitutionality  of  this  latter  provision,  but 
any  law,  even  if  constitutional,  compelling  a  com- 
pany to  part  with  investments,  purchased  in  good 
faith,  within  a  limited  period  is  likely  to  work  an 


GOVERNMENTAL  REGULATION        135 

injustice  to  the  company  and  possible  loss  to  the 
policy-holder.  The  responsibility  for  proper  invest- 
ment of  funds  rests  with  the  directors,  or  the  fi- 
nance committee  of  each  company,  and  the  effect 
of  this  law  is  to  divide  that  responsibility  by  reliev- 
ing the  management  of  choice  in  the  selection  of 
its  investments.  A  further  provision  was  inserted 
in  this  section  by  which  so-called  "collateral  trust 
bonds"  were  made  an  illegal  investment.  Any 
close  student  of  railroad  finance  is  perfectly  familiar 
with  the  fact  that  during  the  last  fifteen  years  the 
tendency  in  the  matter  of  bond  issues  is  toward 
the  collateral  trust  bond,  a  form  of  bond  which,  if 
properly  issued  and  properly  safeguarded,  may 
have  behind  it  as  much  security  as  could  possibly 
be  obtained  under  a  first  mortgage.  No  discretion 
is  given  to  the  companies  to  select  the  good  bonds 
and  discard  the  bad  bonds,  but  an  arbitrary  line  of 
demarcation  between  the  mortgage  bond  and  the 
collateral  trust  bond  has  been  established,  which, 
in  the  mind  of  the  Legislature,  evidently  is  sup- 
posed to  separate  the  good  from  the  bad.  Many  of 
the  best  railroad  securities  of  the  country  are  now 
placed  beyond  the  pale,  and  cannot  be  used  by  the 
companies  in  the  investment  of  their  funds. 

"Valuation  of  securities."  This  subject,  which  is 
one  of  the  greatest  importance,  was  not  sufficiently 
looked  into  by  the  revisers  of  the  law,  and  the 
matter  of  valuation  now  rests  largely  in  the  discre- 


136  ADDRESSES  AND  PAPERS 

tion  of  the  Superintendent  of  Insurance  —  a  tre- 
mendous power  to  place  in  the  hands  of  any  one 
man. 

A  proper  system  of  valuation,  based  upon  amor- 
tization of  fixed-term  securities,  could  have  been 
readily  devised,  which  would  have  been  just  and 
fair,  and  beneficial  to  all  interests  concerned. 

The  law  also  prescribes  standard  forms  of  poli- 
cies, and  these  standard  forms  include  most  liberal 
provisions  for  policy-holders  who  desire  to  borrow 
upon  their  policies,  or  to  surrender  them  for  cash. 
Every  leniency  is  given  to  the  retiring  policy- 
holder and  little  attention  is  paid  to  the  interests 
and  rights  of  the  persistent  policy-holder.  A  tre- 
mendous injury  has  been,  in  my  opinion,  uncon- 
sciously done  by  the  provisions  of  the  new  standard 
policies  in  the  matter  of  loans  and  surrender  values. 
At  first  blush  it  seems  as  though  this  were  in  the 
line  of  general  improvement  of  policy  conditions, 
but  the  close  student  of  the  subject  who  bases  his 
opinion  upon  practical  experience  cannot  but  see 
in  the  present  tendency  a  great  menace  to  the  fu- 
ture of  our  business. 

The  law  went  even  further  and  undertook  to 
regulate  the  matter  of  "internal  management"  in 
the  companies.  There  seems  to  have  existed  in  the 
minds  of  the  legislative  committee  a  preconceived 
conviction  that  the  "mutual"  form  of  government 
was  the  only  wise  plan  for  life  insurance  companies, 


GOVERNMENTAL  REGULATION       137 

and  at  the  very  start  of  the  investigation,  an  at- 
tempt was  made  to  collect  evidence  in  support  of 
this  view. 

This  attempt  was  unsuccessful  and  the  commit- 
tee was  powerless  to  establish  the  fact  that  there 
ever  had  been  an  election  in  a  mutual  company 
which  was  representative  or  effective.  The  theory, 
owever,  was  maintained  and  introduced  into  the 
ew  law  and  a  most  elaborate  election  scheme  was 
devised,  the  object  of  which  was  not  only  to  give 
the  policy-holders  a  right  to  vote,  but  to  compel 
them  to  vote,  if  possible,  whether  they  wanted  to 
or  not.  Under  this  plan  the  companies  have  been 
placed  under  a  great  expense,  opportunity  has  been 
given  to  unscrupulous  parties  to  unnecessarily 
alarm  the  policy-holders,  and  it  is  difficult  to  see 
how,  in  its  cumbersome  details,  the  law  can  be 
either  effective  or  good.  The  makers  of  the  law  were 
so  wedded  to  the  idea  of  mutual  government  that 
they  inserted  in  the  law  also  a  provision  by  which 
companies  could  arrange  to  change  from  a  stock  or 
mixed  form  of  government  to  the  mutual  form. 
This  question  of  interference  in  matters  of  inter- 
nal government  is  one  which  sooner  or  later  must 
be  taken  up  thoroughly  and  the  law  carefully  re- 
vised. 

Such  are,  in  brief,  a  few  of  the  points  covered 
by  the  new  law  which  seem  to  me  to  be  open  to 
criticism. 


138  ADDRESSES  AND  PAPERS 

Let  us  look  for  a  moment  at  the  effects  of  the 
new  law. 

In  the  first  place  there  has  been  a  most  tremen- 
dous shrinkage  in  new  business,  and  the  suffering 
and  loss  has  not  been  confined  to  those  companies 
which  were  criticized  by  the  committee  in  its 
report. 

In  the  report  of  the  Superintendent  of  Insurance, 
issued  in  January  of  this  year,  he  states  that  in 
1904,  the  year  before  the  investigation  began,  the 
New  York  State  companies  wrote  in  new  business 
$1,147,000,000  and  carried  a  total  insurance  of 
$5,970,000,000,  and  that  for  several  years  prior  to 
1904,  the  New  York  State  companies  had  shown  an 
increase  from  year  to  year  in  insurance  of  from 
$300,000,000  to  $600,000,000.  In  the  year  1907 
the  issue  of  new  business  by  the  New  York  State 
companies  was  $455,000,000  and  the  total  insur- 
ance in  force  was  $5,859,000,000;  compared  with 
1904,  the  total  new  business  of  the  New  York  com- 
panies was  less  by  $692,000,000,  and  the  total 
amount  of  insurance  in  force  had  decreased 
$111,000,000. 

It  must  be  conceded  that  the  institution  of  life 
insurance  is  a  very  necessary  factor  in  the  economic 
life  of  any  country.  In  view  of  the  comparatively 
undeveloped  condition  of  our  country,  there  must 
be  a  large  speculative  element  in  its  business  ven- 
tures, and  consequently  the  business  men  of  this 


GOVERNMENTAL  REGULATION        139 

country  must  protect  themselves  by  insurance  to 
a  greater  extent  than  would  prevail  in  a  more  con- 
servative and  settled  country. 

Whatever  may  have  been  the  advantages  accru- 
ing from  the  restrictions  of  the  law,  the  serious 
injury  which  has  been  done  to  the  great  insurance 
companies  of  this  State  is  a  matter  of  no  trifling 
importance,  and  one  is  forced  to  the  belief,  after  a 
careful  study  of  the  situation,  that  the  breaking- 
down  of  the  organization  of  these  various  com- 
panies will,  in  the  end,  involve  serious  loss  to  the 
policy-holders. 

There  was  nothing  in  the  facts  brought  out  by 
the  investigation  to  warrant  such  a  slaughter  of 
the  vast  interests  of  our  life  insurance  companies. 

Another  result  of  the  investigation  is  that  the 
public  has  been  led  to  believe  that  what  is  needed 
is  the  greatest  possible  amount  of  insurance  for  the 
least  possible  amount  of  money  —  that  is,  that 
cheapness  in  the  matter  of  insurance  is  the  most 
essential  feature  of  the  contract.  Under  the  con- 
ditions imposed  by  the  new  law,  "term  insurance" 
and  "non-participating  insurance"  have  become 
very  popular;  investment  insurance  —  so  called  — 
and  endowment  insurance  are  discouraged.  For 
the  young  men  of  the  country  who  are  endeavoring 
to  build  up  a  personal  fortune,  or  at  least  a  com- 
petency, nothing  is  so  productive  of  thrift  and 
prudent  living  as  an  investment  in  endowment 


140  ADDRESSES  AND  PAPERS 

insurance.  The  records  of  the  various  companies 
show  that  this  form  of  insurance  is  profitable  for 
them  as  well.  The  new  law  has  affected  this  form 
of  insurance  most  adversely,  having  followed  in 
this  regard  the  personal  ideas  of  some  of  the  com- 
mittee's advisers.  The  law  is  leading  to  the  keenest 
competition  in  the  line  of  dividends  to  policy- 
holders, a  practice  which  is  a  dangerous  basis  of 
competition  and  yet  a  direct  result  of  the  law, 
which  prescribes  the  method  of  distribution  of 
surplus,  limits  the  amount  of  surplus,  and  insists 
upon  an  annual  distribution.  The  companies  un- 
der the  pressure  of  this  competition  have  already 
declared  dividends  at  the  end  of  the  first  year, 
when  the  actuaries  admit  that  such  dividends  have 
not  been  earned,  and  further,  under  the  new  law 
these  dividends  are  payable  to  the  policy-holder 
whether  he  renews  his  policy  or  not. 

High  pressure  of  former  days  in  hiring  agents  is 
not  nearly  so  serious  in  its  effect  upon  the  general 
condition  of  the  company  as  an  unwise  and  too 
liberal  distribution  of  earnings  to  policy-holders. 
The  liberality  inserted  in  the  present  policies  in 
the  matter  of  surrender  values  and  guaranteed 
cash  loans  is  an  element  which  may  cause  great 
trouble  in  the  future.  It  takes  away  from  the 
company  the  power  of  recuperation  in  the  event  of 
adverse  experience,  and  gives  to  the  healthy  lives 
insured  in  any  company  an  opportunity  of  retiring 


GOVERNMENTAL  REGULATION        141 

when  the  slightest  breath  of  suspicion  strikes  the 
company  in  which  they  are  insured.  Under  such 
conditions  the  natural  result  upon  a  weakened 
company  would  be  that  the  healthy  lives  would 
retire,  the  uninsurable  lives  would  remain,  and  the 
chance  of  saving  the  company  by  economic  admin- 
istration during  a  short  period  of  years  would  be 
defeated  by  the  liberality  of  the  present  statute. 
Under  the  present  law  there  are  possible  dangers, 
similar  to  those  encountered  in  the  past  by  assess- 
ment companies,  and  these  possibilities  the  con- 
servative manager  views  with  alarm  as  he  forecasts 
the  future.  Liberality  to  all  policy-holders  should 
be  the  basis  of  correct  life  insurance  management, 
not  liberality  alone  to  the  retiring  policy-holders. 
Absolute  fairness  and  justice  to  the  entire  body  of 
policy-holders  is  all-essential.  It  would  have  been 
well  if  the  legislators  had  had  this  principle  more 
forcibly  impressed  upon  their  minds. 

Another  effect  of  the  law  is  that  under  its  pro- 
visions there  has  been  a  strong  impetus  given  to 
the  forming  of  new  companies  all  over  the  country. 
By  remaining  out  of  New  York  State,  these  com- 
panies are  able  to  pay  commissions  far  in  excess  of 
those  which  we  can  offer;  they  appeal  to  local 
pride  and  prejudice,  and  they  are  reaping  a  rich 
harvest;  in  many  instances  they  are  not  being 
conservatively  managed,  and  what  the  history  of 
these  companies  will  be  during  the  next  five  years 


142  ADDRESSES  AND  PAPERS 

no  one  can  predict.  The  business  men  of  this  coun- 
try are  taking  insurance  in  these  new  and  untried 
companies  to  an  extent  which  is  certainly  appall- 
ing. The  fact  that  this  new  law  is  limited  to  this 
State,  and  the  fact  that  its  restrictive  provisions 
have  not  been  copied  by  other  States,  has  encour- 
aged the  formation  of  these  companies.  Their 
future  history,  their  possible  failure,  the  consequent 
distrust  of  life  insurance  in  general,  are  all  factors 
which  the  framers  of  this  law  should  have  consid- 
ered in  advance  and  which  we  cannot  disregard 
in  viewing  the  present  situation. 

Such  has  been,  in  brief,  the  history  of  the  agita- 
tion which  led  up  to  the  present  law. 

Such  are  some  of  the  provisions  of  the  law  and 
some  of  the  effects  which  have  resulted  from  its 
enactment. 

In  this  instance,  we  have  a  typical  example  of 
paternal  and  restrictive  legislation  from  which  use- 
ful deductions  of  a  general  character  may  properly 
be  drawn. 

The  nation  will,  in  the  future,  look  to  its  edu- 
cated men  to  handle  questions  of  government. 
The  socialistic  tendencies  of  the  times,  the  constant 
agitation  which  prevails  between  the  conflicting 
economic  forces  of  labor  and  capital,  the  promo- 
tion of  the  best  business  interests  of  this  country, 
are  all  questions  which  in  the  next  fifty  years  will 
have  to  be  considered  and  solved  by  the  young  men 


GOVERNMENTAL  REGULATION        143 

who  are  leaving  our  colleges  to-day.  The  subject  is 
interesting.  The  tendency  to  attempt  to  correct  all 
evils  by  legislation  is  at  the  present  time  growing, 
and  we  are  becoming,  as  was  stated  to  you  a  few 
days  ago  by  the  mayor  of  our  city,  "the  most 
governed  people  of  the  world."  There  is  a  peril  in 
this  tendency  which  we  cannot  overlook.  No  more 
sensitive  organization  exists  in  the  body  politic 
than  the  business  interests  of  the  country.  The 
slightest  breath  of  suspicion,  the  slightest  intima- 
tion of  undue  interference,  the  slightest  indication 
of  unfair  prejudice  at  once  destroys  credit  and  ruins 
confidence.  If  evils  exist  they  must  be  corrected 
by  a  wise  and  cautious  system  of  interference. 
Nothing  can  be  more  contrary  to  the  spirit  of  our 
magnificent  institutions  than  the  general  course 
adopted  in  the  handling  of  the  insurance  question 
in  this  State.  Here  was  a  matter  of  the  greatest 
interest  to  us  all,  a  subject  more  complicated, 
more  vast  in  its  ramifications  than  almost  any 
business  which  could  be  selected.  Life  insurance  is 
a  science  requiring  years  of  study  and  expert  knowl- 
edge before  it  can  be  thoroughly  comprehended  in 
its  true  relations.  In  less  than  a  year,  untried  and 
uninformed  men  had  the  courage  to  investigate 
this  tremendous  subject,  to  reach  conclusions  and 
to  enact  laws  absolutely  revolutionizing  the  entire 
conduct  of  our  business.  Here  is  an  example  of  a 
tendency  which  unfortunately  is  national,  which 


144  ADDRESSES  AND  PAPERS 

spreads  all  over  our  vast  country,  namely,  the 
tendency  to  do  every  thing  in  a  hurry,  and  to 
undertake  our  reforms  superficially.  A  proper 
consideration  of  this  vast  subject  should  have  cov- 
ered years  of  investigation.  It  should  have  been 
followed  by  recommendations  made  by  a  com- 
mission composed  not  only  of  legislators,  but  also 
of  men  tried  and  experienced  in  the  business;  and 
the  law,  as  finally  framed,  should  have  been  the 
result  of  mature  and  careful  study  of  the  subject. 

The  reformer  meets  such  a  suggestion  by  the 
statement  that  the  business  men  of  this  country 
cannot  be  trusted  to  recommend  safe  reforms. 
That  oft-repeated  charge  I  absolutely  resent.  The 
vast  business  of  this  country  could  not  have  been 
successfully  conducted  in  the  past  had  it  not 
been  a  well-established  fact  that  a  dishonest  man 
in  business  is  a  rare  exception,  and  that  perma- 
nent commercial  success  can  be  obtained  only  by 
methods  which  are  above  suspicion. 

It  is  time  for  the  men  who  are  managing  our 
great  corporate  interests,  who  are  known  as  our 
"Captains  of  Industry,"  to  lay  aside  undue  mod- 
esty, and  to  step  out  in  the  open  and  defend  their 
position. 

It  is  most  encouraging  to  see  the  keen-eyed,  clear- 
minded  college  men  with  orderly  brains  and  trained 
intellects  being  sent  out  each  year  by  our  institu- 
tions of  learning  to  devote  their  lives  to  the  solu- 


GOVERNMENTAL  REGULATION        145 

tion  of  the  great  economic  questions  which  are 
before  us.  To  the  solution  of  these  problems,  they 
must  bring  all  the  wisdom  at  their  command,  but 
more  than  that  is  needed.  I  have  met  some  of 
them,  honest  and  enthusiastic,  who  in  their  work 
in  connection  with  governmental  bureaus  seem 
lamentably  weak  in  practical  common  sense,  and 
good  old-fashioned,  hard-headed  powers  of  reason- 
ing. Theorists  they  seem  to  be  with  their  heads  in 
the  clouds,  but  no  solid  foundation  under  their  feet. 
These  are  the  dangerous  reformers  whom  we  most 
dread,  because  their  arguments  are  plausible  and 
their  motives  pure. 

My  message  to  all  young  men  who  intend  to 
interest  themselves  in  these  problems  is  a  most 
simple  one.  Never  forget  that  the  wisest  men  are 
the  most  modest.  Tolerance  of  others'  opinions  is 
the  "hall-mark"  of  the  broad  thinker.  If  you 
intend  to  institute  a  reform  in  any  particular  line 
—  first  study  it  from  every  side  and  from  top  to 
bottom.  Consult  with  the  best-posted,  practical 
men  in  that  line.  Before  you  act,  digest  thoroughly 
the  material  collected,  and  above  all  remember  that 
the  most  effective  reforms,  particularly  in  business, 
must  be  gradual  and  cautious.  Spectacular  appeals 
to  prejudice,  incomplete  and  imperfect  investiga- 
tions, hasty  legislation,  public  clamor,  pride  of  opin- 
ion —  these  should  have  no  place  in  the  programme 
of  the  true  student  of  American  economics.    We 


146  ADDRESSES  AND  PAPERS 

need  caution,  wisdom,  tolerance,  patience,  the  good 
old-fashioned  virtues,  and  it  is  to  the  young  men  of 
the  land,  who  are  college-bred  men,  that  we  nat- 
urally turn  to  find  these  qualities. 

The  business  men  and  the  business  interests  of 
this  land  need  your  support  and  assistance.  It  is 
your  duty  to  undertake  the  work  with  all  your 
strength  of  early  manhood,  tempered  by  discretion 
and  the  wisdom  which  should  result  from  the  edu- 
cational advantages  you  have  enjoyed. 

Just  a  word  in  closing  on  the  general  subject 
which  is  before  us. 

The  present  tendency  toward  close  and  detailed 
regulation  of  the  business  of  corporate  life  is,  in 
my  opinion,  unwise  and  unpractical.  Honesty  of 
management  and  fair  dealing  to  all  we  must  have, 
but  this  result  cannot  be  accomplished  by  simply 
filling  our  statute  books  with  laws  restraining  all 
individuality  of  thought  and  action,  and  destroy- 
ing the  elasticity  of  the  system.  Commercial  na- 
tions of  the  world  are  watching  this  country  in  its 
solution  of  its  present  difficulties,  and  the  greatest 
caution  should  be  exercised  that  the  reforms  which 
we  are  now  instituting  should  be  adopted  only 
after  the  most  mature  and  careful  deliberation. 

I  wish  that  the  general  principle  laid  down  by  our 
Insurance  Committee,  which  I  have  already  quoted, 
could  become  a  maxim  upon  which  our  future 
course  would  be  based. 


GOVERNMENTAL  REGULATION       147 

The  time  is  near  at  hand  when  the  custodians  of 
the  great  business  interests  in  this  country  must, 
for  the  salvation  of  their  business  and  the  protec- 
tion of  all  concerned,  convince  the  people  of  this 
State  and  their  national  representatives,  of  the 
unwisdom  of  the  present  tendency  of  minute 
business  regulation.  When  this  has  been  done,  let 
us  hope  that  the  new  legislation  will  be  on  the  line 
of  strict  accountability  on  the  part  of  all  managers 
and  directors  of  corporations  for  honesty  in  the 
conduct  of  their  business;  that  the  new  laws  will 
enforce  simple  and  intelligible  publicity;  that  in 
details  of  operation  the  power  of  decision  and 
responsibility  will  be  vested  in  the  management, 
and  above  all,  that  the  new  laws  will  encourage  and 
promote  the  growth  of  the  business  interests  of 
this  country  upon  which  we  must  depend,  if  we 
are  to  continue  in  the  splendid  line  of  commercial 
development  which  has  marked  our  national  career 
up  to  the  present  moment. 


EFFECTS  OF  THE  NEW  YORK  STATE 
INSURANCE  LAW1 

During  the  last  few  weeks  several  articles  have 
appeared  in  the  daily  papers  of  this  city,  in  which 
an  attempt  has  been  made  to  show  that  the  effects 
of  the  present  New  York  State  Insurance  Law 
have  been  beneficial  to  the  policy-holders. 

Such  a  deduction  might  readily  be  drawn  from 
a  superficial  study  of  the  recent  reports  of  the 
Superintendent  of  Insurance,  but  a  close  analysis 
of  the  figures  reveals  a  tendency  in  certain  direc- 
tions which  is  not  altogether  a  source  of  congratu- 
lation. We  will  not  discuss  the  recent  retrogression 
of  New  York  State  companies  and  the  advance 
made  by  "foreign"  companies,  but  will  limit  our 
inspection  to  the  record  made  by  the  Equitable, 
Mutual,  and  New  York  Life.  In  an  article  recently 
published  in  the  "Evening  Post"  appears  the  fol- 
lowing statement :  — 

The  effect  of  the  new  order  of  things  has  been  to  in- 
crease the  returns  to  policy-holders  and  thus  lower  the 
net  cost  of  the  protection  secured.  In  the  case  of  the 
three  largest  companies  —  the  New  York  Life,  the 
Mutual  Life,  and  the  Equitable  —  the  total  payments 
to  policy-holders  last  year  aggregated  $149,494,000,  as 

1  Circular  sent  to  all  policy-holders  April  12,  1909. 


STATE  INSURANCE  LAW  149 

against  $111,161,000  in  1904,  when  the  volume  of  new 
business  written  was  almost  threefold  greater. 

One  would  suppose  from  this  broad  statement 
that  the  total  increase  in  payments  to  policy- 
holders, namely,  $38,000,000,  had  inured  to  the 
benefit  of  the  policy-holder,  and  that  the  net 
cost  of  his  insurance  had  been  decreased  by  this 
amount. 

An  analysis  of  the  figures  shows  that  the  greater 
part  of  this  increase  has  arisen  from  the  larger  pay- 
ments for  death  claims,  endowments  and  surrend- 
ers, and  that  the  increase  in  dividends,  which  is  the 
only  factor  which  can  decrease  the  cost  of  insur- 
ance, was  only  about  ten  per  cent  of  this  sum. 

The  following  table  shows  the  amount  of  insur- 
ance in  force  in  these  three  companies  at  the  close 
of  each  of  the  last  six  years.  Also  the  death  claims 
paid  during  the  last  six  years. 

Insurance  in  force  Death  claims 

New  York  Life,  Dec.  31,  1903 $1,745,212,899  $16,860,082 

1904 1,928,609,308  19,734,245 

1905 2,061,593,886  20,822,968 

1906 2,029,605,718  21,525,407 

1907 2,005,341,184  22,761,595 

1908 1,993,559,601  22,131,291 

Mutual  Life,  Dec.  31,  1903 $1,445,228,681  $18,946,053 

1904 1,547,611,660  21,100,227 

1905 1,589,549,468  20,926,068 

1906 1,517,257,180  21,034,051 

1907.:....   1,452,752,408  23,294,030 

1908 1,438,399,803  21,664,823 


150  ADDRESSES  AND  PAPERS 

Insurance  in  force  Death  claims 

Equitable  Life,  Dec.  31,  1903 $1,409,918,742  $18,318,483 

1904 1,495,542,892  18,049,539 

1905 1,465,123,436  18,646,359 

1906 1,376,676,369  18,695,395 

1907 1,340,126,354  18,992,080 

1908 1,326,478,540  20,324,003 

The  amount  of  new  insurance  secured  by  these 
companies  has  shown  a  heavy  decrease  during 
this  same  period.  In  the  New  York  Life,  the  new 
premiums  received  have  decreased  from  $14,000,000 
in  1904  to  $5,424,000  in  1908.  In  the  Mutual  Life, 
the  decrease  for  the  same  period  has  been  from 
$9,000,000  to  $2,853,000,  and  in  the  Equitable 
from  $8,500,000  to  $2,724,000.  The  ratio  of  new 
premiums  to  renewal  premiums  has  shown  the  fol- 
lowing decrease :  in  the  New  York  Life  from  21.82  to 
7.53  per  cent;  in  the  Mutual,  from  19.03  to  5.93  per 
cent;  in  the  Equitable,  from  17.05  to  5.83  per  cent. 

We  therefore  see  that  in  these  three  companies 
the  amount  of  insurance  in  force  has  been  steadily 
decreasing,  and  that'  the  ratio  of  infusion  of  new 
life  has  been  steadily  decreasing.  With  this  condi- 
tion prevailing,  one  result  and  one  only  must  fol- 
low; that  is,  the  mortality  ratio  must  eventually 
increase,  and  probably  that  increase  is  already 
being  felt. 

It  is  impossible  for  us  to  obtain  a  detailed  an- 
alysis of  the  mortality  of  these  three  companies 
during  the  period  covered  in  this  discussion,  but  the 


STATE  INSURANCE  LAW  151 

following  ratio  may  give  some  indication  of  what 
is  taking  place.  The  percentage  of  payments  for 
death  claims  to  total  insurance  in  force  during  the  last 
six  years  in  the  New  York  Life  has  increased  from 
.97  to  1.11  per  cent;  in  the  Mutual,  the  increase  has 
been  from  1.31  to  1.50  per  cent,  and  in  the  Equi- 
table, from  1.30  to  1.53  per  cent.  For  a  certain 
period,  the  saving  in  expense,  by  reason  of  the  small 
amount  of  new  business  written,  will  be  sufficient 
to  offset  the  increase  in  death  claims,  but  it  is  by 
no  means  a  healthy  sign  when  we  see  a  company 
decreasing  its  insurance  in  force,  nor  is  this  a  situ- 
ation which  can  be  viewed  with  equanimity  by  the 
persistent  policy-holder. 

In  the  past  it  was  a  recognized  principle  in  the 
conduct  of  life  insurance  business  that  the  inter- 
ests of  the  persistent  policy-holders  should  be  con- 
served to  the  greatest  extent,  and  a  substantial 
charge  was  made  against  those  policy-holders  who 
retired,  which  charge  was,  of  course,  a  source  of 
profit  to  policy-holders  who  kept  up  their  con- 
tracts. This  source  of  income  is  decreasing,  owing 
to  the  liberal  provisions  of  the  standard  policies 
which  are  required  under  the  New  York  statute. 
The  decrease  in  this  former  profit  is  a  matter  which 
the  persistent  policy-holders  will  realize  more 
fully  in  the  future,  but  the  effect  of  the  change  must 
not  be  forgotten  in  an  analysis  of  the  results  of  the 
present  law. 


152  ADDRESSES  AND  PAPERS 

The  prime  object  of  life  insurance  is  to  protect 
the  insured's  dependents  against  the  inevitable 
loss  which  results  from  his  death.  The  standard 
policies  at  present  prescribed  by  the  New  York 
Law  contain  the  most  liberal  "loan  provisions." 
These  loans  are  guaranteed,  and  the  companies 
must  stand  ready  to  make  good  the  guaranty  at 
any  time  on  immediate  notice  from  the  insured. 
These  loans  are  not  used  in  the  majority  of  cases 
to  keep  the  policies  in  force,  but  the  policy  becomes 
quick  collateral,  which,  upon  the  slightest  provoca- 
tion, can  be  used  as  an  asset  by  the  holder  of  the 
policy.  Loans  so  made  to  the  policy-holder  de- 
crease the  amount  of  protection  which  his  depend- 
ents receive  in  the  event  of  his  death,  and  by  such 
loans,  unless  they  are  used  for  the  purpose  of  con- 
tinuing the  policy,  the  object  of  life  insurance  is 
in  part  defeated. 

It  is  not  by  any  means  an  encouraging  sign  to 
see  these  loans  increasing  as  they  have  during  the 
last  six  years  by  reason  of  the  great  publicity  which 
has  been  given  to  this  privilege,  and  by  reason  of 
the  fact  that  the  attention  of  the  policy-holder  has 
been  called  to  a  privilege  which,  in  many  instances, 
he  was  previously  ignorant  of.  The  figures  are 
certainly  astonishing!  In  the  New  York  Life, 
since  1903,  the  loans  to  policy-holders  have  in- 
creased from  $31,600,000  to  $87,000,000.  In  the 
Mutual,  from  $19,000,000  to  $63,000,000,  and  in 


STATE  INSURANCE  LAW  153 

the  Equitable,  from  $19,000,000  to  $57,000,000, 
and  obviously  the  protection  under  the  policies 
in  these  companies  has  been  decreased  by  these 
amounts. 

The  criticism  of  the  present  law  is  not  limited  to 
the  officials  of  New  York  State  companies,  whose 
opinion  is  regarded  by  many  as  possibly  influ- 
enced by  their  own  personal  interest. 

Mr.  George  King,  F.I. A.  and  F.F.A.,  consulting 
Actuary  of  London,  in  commenting  on  the  present 
New  York  State  Law,  said :  — 

I  think  it  will  be  found  very  speedily  that  the  new 
laws  will  seriously  and  injuriously  hamper  the  conduct 
and  development  of  life  assurance  business,  and  it  is  the 
public  who  will  suffer.  Therefore,  I  anticipate  that 
before  long  there  will  be  a  strong  reaction  and  that  the 
restrictions  now  imposed  will  be  greatly  relaxed. 

He  further  says :  — 

I  believe  that  Governments  should  confine  themselves 
merely  to  seeing  that  the  companies  give  to  the  public 
the  fullest  possible  information  on  every  important 
point.  Since  1870,  this  principle  of  liberty  and  publicity 
has  prevailed  in  the  United  Kingdom,  and  has  been 
productive  of  untold  good. 

He  says  further :  — 

Were  restrictions  to  be  imposed,  responsibility  would 
be  removed  from  the  shoulders  of  the  management. 
Initiative  would  be  lost,  and  progress  would  thus  be 
impeded.  Moreover,  the  public  would  come  to  rely 
more  on  the  Government  regulations  and  less  on  the 


154  ADDRESSES  AND  PAPERS 

integrity  and  ability  of  the  directors,  managers  and 
actuaries;  and  I  should  fear  that,  as  a  result,  abuses 
would  creep  in,  which,  under  the  present  conditions 
[namely,  the  conditions  prevailing  in  Great  Britain]  are 
impossible. 

These  are  the  views  of  a  careful  thinker,  who  has 
given  his  life  to  this  tremendous  subject,  and  are 
quite  in  accord  with  the  expression  of  the  Arm- 
strong Investigating  Committee,  as  contained  in 
its  report  to  the  Legislature. 

In  this  report  it  said :  — 

The  Legislature  should  aim  to  bring  freedom  of  man- 
agement, subject  to  general  regulations  and  complete 
publicity. 

Speaking  of  the  value  of  the  statute  limiting 
first  year's  expense  as  contained  in  our  present 
law,  Mr.  King  says :  — 

The  idea  seems  to  me  to  be  crude  and  ill-considered, 
and  to  be  due  to  merely  superficial  thought  on  the  prin- 
ciples underlying  life  insurance. 

In  view  of  the  character  of  the  present  law,  — 
which  limits  expense,  which  restricts  the  companies 
in  the  amount  of  business  which  may  be  written, 
which  prescribes  investments,  which  curtails  sur- 
plus, and  which  provides  forms  of  standard  policies, 
—  the  present  experiment  which  is  being  made  in 
this  State  is  certainly  an  interesting  one;  but  it  is 
not  fair  that  in  the  analysis  of  the  results  which 
are  accruing  from  the  operation  of  that  law,  con- 


STATE  INSURANCE  LAW 


155 


elusions  should  be  arrived  at  which  are  based  upon 
a  mere  superficial  study  of  the  facts. 

There  are  elements  and  tendencies  in  the  present 
situation  which  are  injurious  and  inimical  to  the 
interest  of  policy-holders.  These  facts  are  clearly 
seen  by  experts  who  have  made  life  insurance  a 
study;  but  there  is  no  reason  why  these  tendencies 
should  not  be  known  by  the  insured  as  well,  and 
it  is  the  duty  of  writers  upon  insurance  to  face  the 
situation  as  it  exists,  and  not  to  be  misled  by  care- 
less tabulations  of  statistics. 


REMARKS  AS  TOASTMASTER « 

Ladies  and  Gentlemen,  Associates,  Counsel- 
lors, Financial  Mentors,  —  In  the  name  of  the 
directors  I  welcome  you  all  here  to-night  as  friends. 
I  know  that  you  are  all  friends  of  the  Home  or  you 
would  not  be  here,  because  I  made  out  the  list  my- 
self. [Laughter.]  There  are  no  insurgents  present. 
[Laughter.] 

Before  we  go  further,  and  you  become  too  deeply 
interested  in  what  I  have  to  say,  —  because  that 
will  absolutely  engross  your  entire  attention,  —  I 
want  to  read  a  few  letters  which  I  have  received 
and  which  should  be  presented.  First  of  all  is 
one  from  our  first  citizen,  the  President  of  the 
United  States.  [Applause.]  I  suggest  that  we  drink 
a  toast  to  him  as  a  fitting  commencement  to  our 
celebration. 

[The  diners  rose  and  drank  the  health  of  the 
President  of  the  United  States.] 

My  dear  Mr.  Ide,  —  I  am  very  sorry,  but  I  fear  I 
shall  not  be  able  to  be  with  you  on  the  10th  of  May  to 
commemorate  the  first  fifty  years  of  your  company.  I 
wish  you  the  pleasantest  sort  of  time. 

1  Delivered  at  a  dinner  given  by  the  directors  of  the  Home  Life 
Insurance  Company,  May  10,  1910,  at  the  Hotel  Plaza,  New  York, 
in  celebration  of  the  fiftieth  anniversary  of  the  founding  of  the 
company. 


REMARKS  AS  TOASTMASTER  157 

The  life  insurance  interests  of  this  country  are  so 
great,  and  they  have  received  such  close  investigation  in 
the  last  decade,  that  I  have  no  doubt  they  are  now 
beginning  a  new  epoch  in  their  existence,  and  I  sincerely 
hope  that  the  new  methods  adopted  will  take  away  the 
opportunity  for  abuses  and  restore  the  public  confidence 
in  them  which  is  so  necessary  to  their  continued  useful- 
ness. Sincerely  yours, 

Wm.  H.  Taft. 
[Applause.] 

I  have  hesitated  to  read  this  second  letter  from 
another  President,  but  one  who  is  very  dear  to  me, 
because  of  the  personal  allusion,  which  I  am  forced 
to  read  as  it  is  in  the  letter.  This  is  from  President 
Hadley,  of  Yale  University. 

My  dear  Mr.  Ide,  —  I  wish  with  all  my  heart  that  I 
were  able  to  be  present  at  the  semicentennial  anniver- 
sary of  the  Home  Life  Insurance  Company.  As  this  is 
impossible,  I  shall  at  least  give  myself  the  pleasure  of 
sending  a  note  of  congratulation,  both  official  and  per- 
sonal. It  is  a  great  thing  to  be  associated  with  a  com- 
pany that  has  had  such  an  honorable  record.  It  is  a 
great  thing  for  the  company  to  have  a  man  like  you  at 
the  helm.  [Applause.]  [Toastmaster  —  I  am  simply 
acting  as  secretary  on  this  occasion.] 

As  a  Yale  man,  I  wish  to  congratulate  you  most 
heartily. 

Faithfully  yours, 

Arthur  T.  Hadley. 
[Applause.] 

We  would  have  had  the  pleasure  of  having  Presi- 
dent Hadley  with  us  to-night  were  it  not  for  the 


158  ADDRESSES  AND  PAPERS 

fact  that  the  University  of  California  will  shortly 
celebrate  also  its  fiftieth  anniversary,  and  there 
being  another  man  out  there  who  has  "Ide"  for  a 
middle  name,  Dr.  Hadley  had  to  go.  [Laughter.] 

When  we  were  planning  this  dinner,  one  of  the 
directors  said,  "  I  think  it  is  a  splendid  thing.  But 
are  you  going  to  have  speeches?  "  I  told  him  that  I 
had  a  friend  who  once  went  to  a  hospital,  having 
had  certain  vague,  meandering  feelings  of  discom- 
fort which  led  him  to  think  that  it  might  be  appen- 
dicitis. So  he  went  to  the  hospital,  and  the  doctors 
looked  him  over,  and  finally  they  said,  "Well,  you 
must  be  operated  upon."  He  said,  "Is  it  neces- 
sary?" The  leading  surgeon  said,  "No,  no,  it  is  not 
necessary,  it  is  customary."   [Laughter.] 

So  I  said  to  this  director  —  he  is  one  of  our  most 
staid  directors :  "  We  have  got  to  have  either  one  of 
two  things;  we  have  got  to  have  either  speeches  or 
vaudeville,  and  under  the  new  regime  vaudeville  is 
not  considered  quite  the  thing."  [Laughter.]  So 
here  we  are.  As  I  look  along  this  line,  it  looks  to  me 
a  little  like  a  minstrel  show,  with  myself  as  the  mid- 
dleman. In  the  minstrels,  you  remember,  the 
middleman  is  simply  ornamental.  It  is  his  part  to 
serve  as  a  foil  to  the  bright  sallies  of  wit  which 
come  from  the  men  on  the  ends,  so  you  must  be 
prepared  for  the  worst  as  it  arrives.  [Laughter.]  It 
has  become  the  practice  to  celebrate  important 
anniversaries   of    individuals,    corporations,    and 


REMARKS  AS  TOASTMASTER  159 

States  by  appropriate  celebrations.  These  have 
sometimes  developed  into  mere  lyceum  lectures, 
but  it  has  been  found  more  successful  first  to  give 
to  the  audience  a  substantial  meal,  and  thereby 
insure  their  attendance,  and  we  have,  therefore, 
selected  this  form  of  entertainment. 

Fifty  years  ago  this  company  was  started,  or 
rather  the  thought  was  started.  Mr.  Stranahan, 
rhom  you  all  know  by  reputation,  was  the  first 
citizen  of  Brooklyn,  and  he  determined  to  start 
some  sort  of  an  institution,  —  primarily  for  the 
purpose  of  providing  a  place  for  Mr.  Griffith,  the 
first  president.  Mr.  Griffith  was  a  man  of  sterling 
merit,  of  great  mental  ability,  and  the  question 
was,  what  sort  of  a  company  should  they  start. 
Mr.  Griffith  said  to  Mr.  Stranahan,  "I  think  we 
had  better  start  a  trust  company."  Stranahan 
said,  "No,  Walter,  don't  you  do  it.  If  you  start  a 
trust  company,  every  one  of  your  directors  will 
know  just  as  much  about  banking  as  you  do,  and 
you  won't  have  any  say  in  the  thing  at  all.  Start  a 
life  insurance  company;  nobody  knows  anything 
about  that."  [Laughter.]  And  that  is  the  way  we 
came  to  be  a  life  insurance  company.  That  sounds 
like  a  fairy-tale,  but  I  had  it  from  Mr.  Stranahan 
himself,  and  he  had  a  way  of  believing  that  what- 
ever he  said  was  so.   [Laughter.] 

Now,  during  the  first  ten  years,  Mr.  Griffith,  the 
first  president,  —  always  known  in  our  board  as 


ICO  ADDRESSES  AND  PAPERS 

"Walter,"  —  developed  extraordinary  ability,  and 
I  think  it  is  no  exaggeration  for  me  to  say  that  of 
the  life  insurance  men  of  that  particular  day  he  was 
by  all  odds  the  most  brilliant,  the  most  aggressive, 
and  the  most  capable  official.   [Applause.] 

The  great  point  about  individuals,  and  I  think  it 
holds  true  of  corporations,  is  pedigree.  I  know  that 
in  this  country  we  are  apt  not  to  appear  to  pay 
much  attention  to  that,  but,  at  the  same  time,  we 
respect  it  perhaps  as  highly  as  any  other  nation  — 
and  the  pedigree  of  the  Home  Life  is  based  upon 
the  history  and  the  character  of  the  Brooklyn  men 
of  1860.  A  great  many  New  York  men  who  are 
here  gain  their  idea  of  Brooklyn  from  the  common 
Manhattan  definition  of  Brooklyn,  which  is  a  place 
noted  for  baby-carriages  and  rubber-plants  and 
situated  halfway  between  the  City  Hall  and  Green- 
wood Cemetery.  [Laughter.]  But  in  those  old 
days,  I  assure  you,  there  was  an  element  of  strength 
and  stability  in  Brooklyn,  which  accounts  for  a 
great  deal  of  the  strength  and  the  stability  of  this 
company.  You  must  remember  that  Salem  and 
New  England  poured  in  the  good  old  blood  of  the 
Pilgrims,  and  it  became  mingled  with  the  old 
Dutch  stock  of  the  strongest  and  the  richest  kind. 
We  certainly  had  conservatism  there.  I  know  all 
about  it,  for  I  was  born  there  and  lived  there  for 
quite  a  while. 

Now,  these  men  were  leaders  in  everything  which 


REMARKS  AS  TOASTMASTER  161 

they  undertook.  I  don't  think  I  can  show  that 
better  than  by  an  anecdote  —  again  referring  to 
Mr.  Stranahan.  He  was  a  witness  in  a  certain  case 
where  action  taken  by  the  Union  Ferry  Company 
was  criticized.  One  of  the  examining  lawyers 
asked  him :  "Were  you  present  at  the  meeting,  and 
did  you  vote  with  the  other  directors  in  favor  of 
this  proposition?  "  He  said,  "  I  did  not."  "  But  you 
were  there?  The  minutes  show  you  were  there?" 
"Yes."  "And  you  voted  for  the  proposition?" 
"Yes;  but  I  did  n't  vote  with  the  other  directors; 
they  voted  with  me."   [Laughter.] 

Now,  I  would  like  to  go  on  and  tell  you  all  about 
this  company,  but  if  I  did  I  would  start  my  eulogy 
on  too  high  a  pitch.  You  remember  the  story  of  the 
revivalist  who  said,  "Now,  brethren,  we  will  start 
that  good  old  song,  'Ten  Thousand  Times  Ten 
Thousand.' "  It  was  started  on  too  high  a  key,  and 
the  singer's  voice  gave  out.  Finally,  some  one  in 
the  rear  shouted,  "Start  her  at  five  thousand, 
brother."   [Laughter.] 

I  want  to  say  a  few  things  about  the  Home,  but  I 
really  don't  dare  to.  The  Home  is  not  one  of  the 
greatest  companies.  You  probably  all  know  that. 
And  I  don't  offer  that  in  its  praise.  The  whole 
object  and  endeavor  of  my  life  for  the  last  twenty 
years  has  been  to  try  to  overcome  that  difficulty. 
[Laughter.]  I  have  not  succeeded  very  well  as  yet. 
I  cannot  see  exactly  why  size  should  be  looked  upon 


162  ADDRESSES  AND  PAPERS 

with  so  much  suspicion.  I  don't  believe  that  wealth 
is  necessarily  dangerous.  Of  course,  there  is  a  little 
truth  in  the  story  of  Pat  and  the  priest,  where  the 
priest  said,  "Pat,  are  you  leading  a  moral  life?" 
"Your  worship,"  Pat  replied,  "how  can  I  help  it 
on  five  dollars  a  week?  "  [Laughter.]  It  is  true  that 
poverty  acts  as  a  restraint,  but  I  can  never  get  over 
the  feeling  that  virtue  which  is  simply  the  result  of 
poverty  is  not  the  highest  kind  of  virtue. 

I  do  not  know  exactly  how  far  to  pursue  this 
thought,  but  it  seems  to  me  that  our  State  has 
made  a  most  glaring  error  when  it  feels  that  it  can 
correct  the  evils,  particularly  of  our  business,  by 
restrictive  measures.  My  experience  in  business 
matters  may  be  limited,  but  I  think  the  experience 
of  all  of  you  gentlemen  will  prove  that  perhaps 
ninety  per  cent,  perhaps  ninety-five  per  cent  —  it 
may  be  ninety-eight  per  cent,  as  some  estimate  it 
—  of  all  men  with  whom  you  do  business  are  hon- 
est. [Applause.]  And  I  do  not  believe  it  is  the  part 
of  a  great  State  to  curtail  the  usefulness,  the  power, 
the  efficiency  for  good,  of  ninety-eight  per  cent  in 
order  to  correct  the  evils  of  two  per  cent.  [Ap- 
plause.] Were  the  Legislature  of  this  State  to  say, 
"We  will  limit  the  size  of  hospitals,  of  churches, 
and  of  schools,"  the  citizens  of  this  State  would  rise 
up  in  righteous  indignation.  And  yet  we  all  know 
that  there  has  been  dishonesty,  that  there  has  been 
extravagance  and  bad  management,  in  some  of  our 


REMARKS  AS  TOASTMASTER  163 

hospitals  and  schools  and  churches.  I  hope  the 
State  may  see  the  evil  of  that  section  which  cuts 
down  the  volume  of  business.  In  fact,  the  reason 
our  distinguished  guest,  the  Superintendent  of 
Insurance,  is  not  yet  with  us  is  that  he  has  been 
this  afternoon  attending  a  hearing  at  Albany  on 
this  very  subject.  He  will  be  here  later.  It  looks 
very  much  as  though  the  State  were  about  to  take 
one  little  timid  step  into  the  right  track.  [Ap- 
plause.] 

Regarding  this  restriction  of  which  we  read  so 
much  in  the  papers,  the  reformers  seem  to  feel  they 
have  discovered  something  new.  I  have  studied 
this  subject  a  little,  and  I  find  in  the  24th  Article  of 
the  Amsterdam  Order  of  1598  the  following:  "We 
expressly  prohibit  insurance  on  the  life  of  any  per- 
son, and  likewise  wagers  upon  any  voyage  or  frivo- 
lous purpose,  and  where  they  are  made  we  declare 
them  void."  And  again,  in  the  10th  Article  of  the 
French  Marine  Ordinance  of  Louis  XIV  is  the  fol- 
lowing: "We  forbid  the  making  of  any  insurance 
upon  the  life  of  man."  This  was  in  1681. 

Now,  our  company  is  a  child  of  this  State  of  New 
York.  We  certainly,  those  of  us  who  are  in  this 
business,  have  not  forgotten  it  during  the  last  five 
years.  We  have  had  a  most  fond  and  most  atten- 
tive parent.  We  remember  that  "Whom  the  Lord 
loveth,  he  chasteneth."  Judged  on  that  basis,  the 
love  of  the  State  of  New  York  for  the  insurance 


164  ADDRESSES  AND  PAPERS 

interests  is  past  belief.  [Laughter.]  Some  of  it, 
gentlemen,  has  looked  to  me  a  little  bit  like  the  pre- 
caution of  the  old  farmer  who  burned  his  barn  to 
kill  the  rats.   [Laughter.] 

But  the  movement  did  not  stop  there.  When 
these  things  get  going  they  spread.  You  remember 
when  the  children  of  Israel  were  brought  through 
the  wilderness  they  had  a  very  lucky  time  after- 
ward. Two  holy  men  went  up  into  the  mountain 
to  receive  ten  simple  statutes,  which  have  been 
found  to  be  pretty  workable  ever  since.  After  the 
life  insurance  interests  had  been  through  their  trip 
in  the  wilderness,  forty-six  Legislatures  went  right 
up  in  the  air.  [Laughter.]  And  you  know  what 
they  have  done.  Our  distinguished  guest,  Senator 
Dryden,  says  that  during  the  last  nine  years,  86,000 
laws  have  been  enacted,  34,000  of  which  have 
affected  business  interests,  including  insurance.  I 
would  estimate  roughly  that  33,800  of  these  relate 
to  life  insurance.  [Laughter.]  Another  distin- 
guished gentleman  has  described  these  statutes  as  a 
mystic  maze  of  multitudinous  mandates.  The  situ- 
ation is  certainly  complex,  and  I  can  quite  sympa- 
thize with  one  of  the  staid  New  England  Life  presi- 
dents with  whom  I  was  talking  one  day.  I  asked 
him  what  he  intended  to  do  in  regard  to  one  of  the 
new  Wisconsin  laws.  He  said,  "  I  don't  pay  any 
attention  to  these  laws.  I  have  all  I  can  do  to  keep 
the  Ten  Commandments."   [Laughter.] 


REMAKES  AS  TOASTMASTER  165 

Now,  gentlemen,  to  be  serious.  Under  the  sur- 
face there  are  certain  tendencies  which  I  think  are 
extremely  dangerous  in  this  matter  of  legal  re- 
straint of  corporations.  Modern  reform  of  business 
as  enacted  by  our  Legislatures  does  not  attempt  to 
make  the  man  in  power  any  better  in  his  intentions 
or  in  his  motives,  but  it  simply  aims  apparently  to 
surround  him  with  such  barriers  that,  however  bad 
he  may  be,  he  can  do  the  least  possible  harm.  [Ap- 
plause.] In  the  future  it  is  possible  that  we  may 
regret  the  enactment  of  these  highly  complex  re- 
strictive measures.  The  business  man  of  to-day  is 
constantly  compelled  to  ask  himself,  Is  this  action 
which  I  am  about  to  take  legal?  He  should  ask 
himself,  Is  it  right  and  just  and  fair?   [Applause.] 

This  is  no  time,  of  course,  for  a  close  discussion  of 
these  important  questions,  but  life  insurance  men 
have  had  little  else  to  think  of  during  the  last  five 
years,  and  it  is  rarely  that  I  have  such  an  opportu- 
nity to  keep  you  here  to  hear  me.  I  simply  wish  to 
enter  once  more,  on  this  occasion,  my  individual 
plea  for  simple  and  comprehensible  publicity, 
coupled  with  individual  freedom,  as  the  most  last- 
ing panacea  for  the  evils  of  our  present  business 
system.    [Applause.] 

If  we  approach  this  issue  on  these  lines,  I  con- 
fidently expect  that  future  generations,  gazing 
back  upon  this  hour,  may  say,  in  the  words  of 
Richard  Watson  Gilder:  — 


166  ADDRESSES  AND  PAPERS 

Then  was  the  time  when  men  were  truly  men; 
Guarding  the  country's  honor  as  their  own, 
Proclaiming  service  the  one  test  of  worth; 
Defying  leagued  fraud  with  single  truth; 
Knights  of  the  Spirit,  warriors  in  the  cause, 
Of  justice  absolute  'twixt  man  and  man. 

[Applause.] 

We  are,  however,  struggling  along  under  existing 
conditions,  and  some  of  us  who  have  pretty  fair 
digestions  and  a  good  degree  of  optimism  think 
occasionally  we  see  a  little  shift  in  the  wind,  a  little 
change  in  the  barometer,  a  little  indication  of  clear- 
ing weather.  In  any  event,  the  Home  is  prepared 
to  sail  along  as  she  has  during  the  last  fifty  years, 
straight  on  her  course.  We  will  put  on  all  the  light 
sails  and  ballooners  and  forge  ahead  when  they  let 
us.  But  if  the  conditions  are  bad,  we  will  do  as  we 
are  now  doing  —  shorten  sail  and  fight  it  out  under 
storm  canvas.  [Great  applause.] 

Gentlemen,  I  offer  a  toast;  it  is  to  the  Home,  to 
her  founders,  men  of  sterling  worth,  to  her  history, 
unsullied,  clean  and  above  reproach,  and  to  her 
future,  resplendent  with  promise. 


THE  PROPOSED  INCREASE  IN 
FREIGHT  RATES1 

Mr.  Chairman  and  Gentlemen,  —  The  deci- 
sion of  the  question  now  before  this  Commission 
will  have  a  potent  influence  upon  the  future  earn- 
ings of  our  railroads,  and  upon  these  earnings  will 
depend  the  value  of  their  securities. 

I  appear  for  the  life  insurance  interests,  which 
represent  an  aggregate  holding  of  railroad  securi- 
ties far  beyond  what  is  ordinarily  believed.  For 
whom  are  these  securities  held?  The  assets  of  life 
insurance  companies  represent  accumulations  to 
provide  a  reserve  required  by  law  against  each 
policy,  and  also  a  surplus  fund  held  for  future  con- 
tingencies. In  all  companies  the  reserve  fund  is 
distinctly  maintained  for  the  protection  of  each 
individual  policy.  The  surplus  fund  belongs  in  part 
or  whole  to  the  policy-holders  according  to  the 
character  of  the  organization.  In  mutual  companies 
it  is  entirely  theirs.  Let  me  cite  a  specific  case  to 
make  my  meaning  clear. 

In  the  company  with  which  I  am  connected, 
the  total  admitted  assets  are  $23,600,000;  of  these 

1  Representing  the  Association  of  Life  Insurance  Presidents  before 
the  Federal  Interstate  Commerce  Commission  at  a  public  hearing, 
November  26,  1910. 


168  ADDRESSES  AND  PAPERS 

assets  $6,400,000  is  invested  in  mortgage  bonds; 
$8,160,000  in  railroad  bonds;  and  in  railroad  stocks, 
$705,000.  Thirty-seven  and  one  half  per  cent  of 
the  company's  total  assets  is  invested  in  railroad 
securities.  About  45,000  policy-holders  are  the 
real  beneficiaries  and  practical  holders  of  these  se- 
curities. It  is  not  an  intangible  vague  corporation 
which  owns  these  bonds  for  the  benefit  of  a  few 
wealthy  stockholders.  The  bonds  are  held  sacredly 
in  trust  for  45,000  citizens  scattered  over  the  entire 
United  States.  These  are  the  facts  concerning  only 
one  of  the  companies,  and  a  small  one  at  that. 

It  is  said  that,  if  by  reason  of  your  action  the 
earning  power  of  railroads  should  fall  below  the 
requirements  for  dividends  and  fixed  charges  under 
existing  or  future  conditions,  the  only  sufferers 
would  be  the  stockholders  who  would  receive  a 
reduced  dividend.  This  is  not  a  full  statement  of 
the  case.  The  value  of  any  prior  lien  is  affected  by 
the  margin  of  safety  over  the  lien.  Take  a  mort- 
gage loan  on  real  estate.  It  is  common  practice  to 
loan,  say,  $60,000  on  a  conservative  valuation  of 
$100,000.  Suppose  some  law  were  to  be  enacted  or 
some  new  condition  created  which  should  reduce 
the  value  of  real  estate  so  that  this  property, 
originally  worth  $100,000,  should  be  only  worth 
$80,000.  In  the  first  case,  the  margin  on  the  loan 
is  $40,000.  Under  the  new  conditions  that  margin 
would  only  be  $20,000.  The  value  of  the  investment 


INCREASE  IN  FREIGHT  RATES        169 

is  impaired  and  yet  the  owner  may  continue  to  pay 
his  interest.  It  is  not  necessary  to  wipe  out  all 
of  the  margin  before  the  value  of  the  security  is 
affected.  Why  is  it  that  so  many  of  our  States  have 
laws  requiring  that  a  railroad  company  must  pay 
dividends  on  its  stock  for  a  given  number  of  years 
before  its  bonds  shall  be  a  legal  investment  for 
savings  banks,  unless  it  is  because  it  is  generally 
believed  that  by  such  a  record  of  dividend-earn- 
ing power  the  value  of  the  underlying  security  is 
enhanced. 

In  investments  for  life  insurance  companies,  the 
trustees  of  these  funds  seek  safety,  satisfactory 
interest  return,  and  stable  values.  It  is  also  of 
extreme  importance  to  secure  long-term  invest- 
ments, if  possible.  It  is  a  trite  axiom  that  credit  is 
based  largely  on  sentiment.  If  there  is,  for  any 
reason,  created  in  the  mind  of  the  financial  world  the 
slightest  suspicion  that  our  railroads  cannot  earn  a 
fair  living,  then  credit  will  be  at  once  impaired,  for 
buyers  of  these  securities  will  not  be  found. 

I  am  not  here  to  plead  for  the  holders  of  junior 
securities,  although  they  have  their  rights,  but  I 
do  wish  to  impress  upon  your  minds  the  fact  that  if 
distrust  be  created,  the  bonds,  the  underlying  se- 
curities, will  be  injured  in  their  value.  Who  will 
suffer?  As  nearly  as  I  can  learn,  of  the  entire 
bond  issues  of  the  steam  railroads  of  this  coun- 
try amounting  to  $9,118,000,000,  the  life  insurance 


170  ADDRESSES  AND  PAPERS 

companies  doing  business  in  the  State  of  New  York 
hold  $1,139,000,000,  or  one  eighth  of  the  entire 
railroad  bond  issues  of  the  country.  There  are 
about  20,000,000  policy-holders  in  these  life  insur- 
ance companies,  and  they  are  all  collectively  and 
individually  interested  in  the  integrity  of  this  in- 
vestment. Any  move  which  even  sentimentally 
affects  unfavorably  the  railroads  of  the  land  will 
strike  a  blow  at  these  securities  which  will  affect 
this  vast  army  of  thrifty  citizens.  It  is  not  neces- 
sary to  reduce  railroads  to  a  condition  of  bank- 
ruptcy before  the  value  of  the  underlying  securities 
is  affected.  For  these  policy-holders  I  therefore 
appear.  They  are  not  able  to  plead  for  themselves. 
I  know  that  in  your  deliberations  you  are  giving 
to  this  momentous  question  the  most  careful 
thought  and  investigation,  but  it  seems  to  me  of 
vital  importance  that  in  arriving  at  a  sound  conclu- 
sion one  should  not  overlook  the'  fact  that  a  false 
step  at  this  time  will  affect  seriously  a  vast  number 
of  our  citizens  who,  unable  individually  to  make 
their  own  investments  in  securities  of  railroads,  are 
yet  indirectly  but  intimately  interested  in  their 
prosperity  and  well-being;  and  further,  that  your 
action  will  be  considered  as  a  precedent  to  guide  the 
Commissions  of  our  several  States  in  their  considera- 
tion of  similar  problems.  The  shipper,  the  jobber, 
the  salesman,  and  the  consumer  all  have  rights  of 
paramount  importance,  but  the  policy-holders  and 


INCREASE  IN  FREIGHT  RATES        171 

savings  bank  investors  must  also  be  considered, 
for  their  interests  are  already  vested  in  securities 
which  have  been  purchased  for  their  protection  and 
profit,  which  were  wise  and  conservative  invest- 
ments on  the  part  of  their  trustees  at  the  time  they 
were  made.  The  individual  investor  has  his  rights 
as  well,  but  he  is  able  to  appear  for  himself.  Under 
our  general  economic  system  the  small  saver  who 
may  become  the  future  capitalist  is  a  partner  in 
these  enterprises.  Anything  which  affects  un- 
favorably the  prosperity  and  extension  of  our  rail- 
roads will  ultimately  be  felt  by  him,  and  his  wel- 
fare is  of  vital  importance  to  the  upbuilding  of  our 
nation. 


COMPULSORY  SALE  OF  STOCKS1 

Mr.  Chairman  and  Gentlemen,  —  In  any 
proper  consideration  of  section  100,  regulating 
investments  of  life  insurance  companies,  it  is  es- 
sential that  we  should  bear  in  mind  the  circum- 
stances which  led  up  to  the  passage  of  this  act. 
The  report  of  the  joint  committee  of  the  Senate 
and  Assembly  transmitted  to  the  Legislature  in 
February,  1906,  as  a  result  of  the  investigation, 
takes  up  the  consideration  of  investments  at  some 
length.  Referring  to  investments  in  securities  and 
to  the  liberality  of  the  former  law,  it  is  said  by  this 
committee  that  "the  liberality  of  this  provision 
has  tempted  life  insurance  companies  to  engage 
indirectly  in  enterprises  foreign  to  the  purpose  of 
their  organization  through  the  control  of  subsid- 
iary corporations;  by  means  of  stock  ownership, 
some  have  practically  transacted  the  business  of 
banks  and  trust  companies.  One  company  has  in 
this  manner  owned  and  conducted  a  restaurant, 
etc.,  etc." 

Then  follows  the  statement  that  "purchases 
have  been  made  not  for  investment  but  for  re-sale 

1  Remarks  before  the  Insurance  Committee  of  the  Senate  and  As- 
sembly of  the  State  of  New  York  on  the  subject  of  the  compulsory 
sale  of  stocks.    (Section  100,  of  the  Insurance  Law.)   April  26,  1911. 


COMPULSORY  SALE  OF  STOCKS       173 

and  the  companies  have  freely  furnished  their  sup- 
port to  numerous  financial  ventures  through  par- 
ticipation in  the  under  writings  of  syndicates." 

All  of  the  arguments  apparently  in  this  report 
bearing  on  this  particular  subject  have  to  do  with 
the  question  of  future  investments.  In  the  sum- 
mary, however,  the  committee  made  three  recom- 
mendations as  to  future  investments  and  then 
recommended  the  compulsory  sale  of  stocks  before 
December  31,  1911,  without  apparently  giving 
any  reason  for  this  act,  and  further  stipulated  that 
"in  each  year  prior  to  that  date,  the  companies 
shall  make  reduction  of  the  amount  of  such  invest- 
ments to  an  extent  approved  by  the  Superintendent 
of  Insurance."  This  recommendation  became  a  law. 
I  have  not  found  that  any  one  has  ever  been  able 
to  determine  exactly  what  was  meant  by  this  last 
clause,  and,  as  far  as  I  know,  the  Superintendent 
of  Insurance  has  never  felt  like  exercising  any  ini- 
tiative in  this  regard  by  recommending  the  sale  of 
stocks,  and  in  fact,  little  has  been  done  by  the  de- 
partment in  the  way  of  approving  the  sales  made 
by  the  managers  of  the  companies.  Had  the  super- 
intendent exercised  any  initiative  or  had  he  with- 
held his  approval  from  any  sales  which  were  made, 
the  question  of  the  constitutionality  of  this  section 
could  have  then  been  taken  up  and  then  definitely 
passed  upon  before  the  expiration  of  the  period 
required.    The  companies  have  apparently  been 


174  ADDRESSES  AND  PAPERS 

attempting  to  carry  out  the  provisions  of  this  re- 
quirement. In  the  case  of  the  company  which  I 
represent,  we  have,  since  the  passage  of  this  law, 
disposed  of  4678  shares  of  stock,  and  have  on  hand 
at  the  present  time  8662  shares. 

The  experience  of  our  finance  committee  is 
probably  not  peculiar,  and  the  difficulty  of  the  situ- 
ation which  has  confronted  us  cannot  be  exagger- 
ated. When  the  market  has  been  strong  and  an 
inclination  has  been  shown  to  sell  stock  securities 
which  we  held,  the  question  has  always  arisen  in 
our  minds :  "  Are  we  properly  caring  for  the  interests 
of  our  policy-holders,  if  we  sell  stock  on  what  seems 
like  a  strong  market,  when  attention  is  given  to 
the  fact  that  having  once  sold  these  stocks  we  can 
never  buy  them  back?"  Many  financiers  are  able 
to  determine  with  more  or  less  correctness  the 
general  swing  of  market  prices,  but  he  is,  indeed, 
a  wise  man  who  can  be  expected  to  know  when  is 
the  best  time  once  and  for  all  to  sell  securities  which 
he  is  holding  in  trust  for  thousands  of  policy-holders, 
if  he  is  never  to  be  allowed  to  re-purchase  when  the 
decline  which  he  expects  takes  place.  Therefore, 
many  directors  have  felt  that  it  was  the  part  of 
prudence  and  wisdom  to  hold  the  securities  until 
the  end  of  the  five-year  period,  believing  that  the 
responsibility  of  possible  future  loss  should  be 
thrown  upon  the  State  where  it  belongs  if  this  law 
remains  upon  our  statute  books. 


COMPULSORY  SALE  OF  STOCKS       175 

The  whole  disposition  of  the  managers  of  life 
insurance  companies  is  to  part  with  securities  of 
corporations  in  which  they  hold  a  large  and  control- 
ling interest,  for  it  is  evident  to  all  managers  that 
the  present  popular  desire  and  feeling  are  that 
companies  should  avoid  in  the  future  the  mainte- 
nance of  such  control  as  being  opposed  to  general 
public  policy. 

It  is  my  firm  belief  that,  under  the  existing  state 
of  public  opinion,  this  matter  will  gradually  shape 
itself  toward  the  final  elimination  of  stock  holdings, 
but  I  also  firmly  believe  that  this  liquidation  should 
not  be  forced,  for  if  it  is  to  be  conducted  in  an  or- 
derly manner  and  to  the  best  interests  of  all  con- 
cerned, the  management  of  this  liquidation  must 
be  placed  in  the  hands  of  the  directors  who  are 
managing  the  company. 

Every  one  knows  that,  in  the  matter  of  barter, 
nothing  is  so  fatal  to  the  securing  of  a  fair  price  for 
any  commodity  as  for  the  purchaser  to  know  that 
the  commodity  must  be  sold  within  a  given  time. 
Where  companies  have  had  holdings  of  stock  in 
other  corporations,  the  knowledge  of  the  existence 
of  this  statute  has  held  the  price  at  a  comparatively 
low  figure,  and  in  one  instance  the  rumor  that  such 
a  large  block  of  stock  had  been  sold  was  sufficient 
to  cause  an  immediate  rise  in  the  shares  of  that 
corporation. 

This  entire  section  100  needs  complete  revision, 


176  ADDRESSES  AND  PAPERS 

but  possibly  it  is  wise  to  postpone  that  act  until 
there  is  less  pressure  and  until  proper  time  can  be 
given  to  its  careful  consideration,  but  there  can  be 
no  postponement  in  this  matter  of  compulsory  sale. 
Let  us  look  at  the  justice  or  injustice  of  this  pro- 
vision: These  stocks  were  bought  under  the  exist- 
ing law  of  the  State  at  the  time  of  purchase;  they 
were  acquired  in  absolute  good  faith  under  the  direc- 
tion of  the  boards  having  these  matters  in  charge. 
It  is  certainly  a  most  appalling  exercise  of  State 
power  for  the  State  to  insert  such  a  mandate  as  is 
contained  in  this  provision.  Many  of  our  best 
lawyers  claim  that  the  State  has  far  exceeded  its 
constitutional  powers.  Whether  this  be  so  or  not, 
if  the  State  is  endeavoring  to  treat  its  creatures 
with  fairness  and  justice,  there  is  little  excuse  or 
apology  which  can  be  offered  for  this  order.  The 
penalty  is  such  that  a  test  of  the  constitutionality  of 
the  law  is  extremely  difficult. 

The  question  naturally  occurs  to  the  minds  of 
the  directors:  As  we  are  simply  trying  to  protect 
the  interests  of  other  people,  is  it  worth  while  to 
lay  ourselves  open  to  possible  commission  of  a  mis- 
demeanor, in  order  to  prove  whether  the  law  is  con- 
stitutional? 

I,  therefore,  appeal  to  this  committee  simply  on 
the  grounds  of  ordinary  justice,  and  ask  that  we  be 
allowed  to  hold  these  stocks  for  sale  at  such  time  as 
may  seem  best  to  our  directors  without  further 


COMPULSORY  SALE  OF  STOCKS       177 

regulation  or  limitation  as  to  the  securities  which 
we  now  hold. 

I  also  wish  to  emphasize  the  fact  that  I  would 
have  the  same  objection  to  a  time  limit  of  ten, 
fifteen,  or  twenty  years  as  I  have  to  the  present 
limitation.  It  is  the  injustice  of  the  principle  which 
I  wish  to  emphasize,  and  if  it  is  admitted  that  the 
underlying  principle  is  wrong,  unjust,  and  unfair, 
it  should  not  be  allowed  to  remain  on  our  statute 
books  for  one  moment.  It  must  be  remembered 
that  this  entire  insurance  law  was  passed  in  a  time 
of  great  excitement,  and  when  popular  clamor 
existed  to  a  remarkable  degree.  Whether  or  not 
the  public  mind  was  justified  in  its  attitude  is  ir- 
relevant. It  is  the  duty  of  our  legislators  carefully 
to  consider  from  time  to  time  the  various  provisions 
of  our  insurance  law,  and  to  eliminate  from  that 
law  anything  which  seems  to  have  been  the  result 
of  popular  prejudice  or  popular  excitement  at  the 
time  of  its  passage. 

Economically,  the  provision  is  unsound.  It  is 
contrary  to  the  basic  principles  of  trade.  The  un- 
wisdom and  injustice  of  this  provision  will  possibly 
be  better  appreciated  if  we  apply  it  in  another 
department :  The  feeling  exists  in  the  minds  of  some 
that  the  real  estate  holdings  of  life  insurance  com- 
panies have  been  too  large  and  that  the  extreme 
variance  of  opinion  as  to  real  estate  values  makes 
such  holdings  dangerous  for  a  life  insurance  com- 


178  ADDRESSES  AND  PAPERS 

pany,  particularly  in  any  calculation  of  its  assets. 
Suppose  the  committee  had  taken  this  view  of  the 
situation  and  had  said  that  life  insurance  companies 
must  sell  all  of  their  real  estate  holdings  within  five 
years.  What  would  have  been  the  effect  upon  the 
value  of  such  holdings  and  where  could  the  com- 
panies have  turned  to  find  purchasers  except  at 
bargain  prices?  No  one,  I  believe,  will  deny  that 
such  an  act  would  have  caused  great  loss  to  the 
policy-holders,  and  yet  the  principle  is  entirely  the 
same  and  the  effect  identical  when  similar  action 
is  taken  in  regard  to  holdings  of  securities. 

Whatever  the  result  of  the  sale  of  securities  may 
be  to  the  policy-holders,  the  responsibility  does  not 
rest  on  the  shoulders  of  the  insurance  managers. 
The  State  has  stepped  in  and  taken  charge  of  our 
vested  interests  in  stocks  and  upon  the  State  must 
rest  the  burden,  whatever  that  burden  may  be. 

I  opposed  this  provision  on  exactly  these  grounds 
in  conference  with  the  committee  before  the  law 
was  enacted.  It  was,  I  know,  advocated  and  sup- 
ported only  in  a  half-hearted  way  by  some  members 
of  the  committee.  As  we  all  remember,  the  Legis- 
lature passed  that  entire  act  without  deliberation 
commensurate  with  the  importance  of  the  interests 
involved. 

I  trust  that  the  subject  will  now  have  your  care- 
ful and  thoughtful  consideration,  and  that  this  pro- 
vision may  be  entirely  eliminated  from  our  law. 


THE  SACREDNESS  OF  TRUSTEESHIP  IN 

THE  INVESTMENT  OF  LIFE 

INSURANCE  FUNDS1 

The  far-reaching  importance  and  magnitude  of 
this  subject  are  manifest,  and  naturally  it  is  im- 
possible to  treat  it  exhaustively  at  this  time.  I 
shall  simply  attempt  to  cover  a  few  points,  trite 
and  commonplace,  which  must  be  clearly  under- 
stood and  constantly  borne  in  mind  if  we  are  to 
proceed  intelligently  in  the  discussion  of  the  subject 
of  the  day,  namely,  "The  Conservation  of  Life 
Insurance  Funds." 

The  subject  we  are  now  discussing  is  a  most 
serious  one.  It  calls  for  conservative  and  clear 
statement.  It  must  be  approached  fearlessly.  I 
am  only  expressing  my  individual  belief,  and  prob- 
ably my  views  will  not  meet  with  favor  in  some 
quarters,  particularly  in  view  of  the  present  atti- 
tude of  public  opinion. 

Those  of  us  who  attended  the  Fourth  Annual 
Meeting  of  our  Association  in  Chicago  two  years 
ago  remember  the  very  able  paper  read  by  Profes- 
sor Laughlin,  of  Chicago,  on  the  "Study] of  the 
People's  Investments."   I  wish  to  quote  one  or  two 

1  An  address  delivered  at  the  Sixth  Annual  Meeting  of  the  Asso- 
ciation of  Life  Insurance  Presidents  at  New  York,  December  6, 1912. 


180  ADDRESSES  AND  PAPERS 

sentences  from  his  introductory  remarks,  which 
seem  to  be  applicable  at  the  present  moment.  He 
said :  — 

The  situation  to-day  in  our  democracy  is  a  curious 
complex  of  ignorance,  progress,  radicalism,  intelligence, 
idealism,  and  conservatism.  We  must  face  the  fact  that 
problems,  which  should  (and  would  in  a  country  like 
Germany)  be  sent  to  experts  for  solution,  must  here  be 
solved  by  a  counting  of  noses  in  an  electorate  which 
means  well,  but  is  wholly  untrained  in  abstruse  subjects 
of  vital  importance.  Everything  depends  upon  getting 
the  truth  before  a  suspicious  and  distrustful  community. 
We  are  a  mercurial  people  who  often  move  under  waves 
of  emotion  without  much  discrimination. 

Such  was  his  feeling  of  the  attitude  of  the  public 
mind  when  he  presented  his  able  paper  to  this 
association.  My  feelings  are  very  much  the  same  in 
approaching  the  subject  of  life  insurance  invest- 
ments, and  the  sacredness  of  the  trust  of  their 
administration.  I  am  confident,  however,  that 
careful  attention  to  this  subject,  if  we  view  it  in  the 
broadest  way,  will  correct  many  misapprehensions 
and  false  ideas  which  unconsciously  and  gradually 
have  crept  in,  and  which,  apparently  innocent  and 
inoffensive  at  the  start,  may,  if  carried  to  extremes, 
undermine  the  integrity  of  the  whole  system  of  life 
insurance. 

First  of  all,  it  must  be  remembered  that  the  assets 
of  life  insurance  companies  are  bound  to  increase. 
This  is  an  unavoidable  factor  under  the  system  of 


SACREDNESS  OF  TRUSTEESHIP        181 

level  premium"  insurance.  There  must  be  an 
annual  addition  to  the  reserve  on  each  policy.  The 
States  require  the  maintenance  of  this  ever-growing 
liability,  and  consequently  we  cannot  escape  the 
fact  that  the  life  companies  are  to  be  the  deposi- 
tories of  larger  aggregations  of  capital  as  the  years 
go  by.  The  problem  of  how  to  administer  these 
funds,  large  as  that  problem  now  is,  will  constantly 
assume  greater  proportions  in  the  future.  The 
assets  of  companies  doing  business  in  the  State  of 
New  York  were  $24,000,000  in  1860;  $418,000,000 
in  1880;  $1,724,000,000  in  1900;  $3,943,000,000  in 
1911.  Who  can  tell  what  these  figures  will  be  at  the 
end  of  the  next  fifty  years?  . 

It  is  interesting  to  know  how  this  fund  is  dis- 
tributed. The  assets  of  companies  doing  business 
in  New  York  State  are  invested  approximately  as 
follows :  — 

Real  estate 4  per  cent. 

Bonds  and  mortgages 31 

Stocks  and  bonds 48 

Loans  to  policy-holders 13 

Cash  and  miscellaneous    4 

There  is  another  vital  element  in  the  situation. 
The  premium  rates  are  variously  calculated  on  an 
assumed  rate  of  interest  to  be  earned,  ordinarily  3, 
3 J,  or  4  per  cent.  Interest  at  the  rate  selected  must 
be  earned  upon  the  reserve.  That  is,  it  is  necessary 
to  invest  the  general  assets  of  the  company  on  such 
a  basis  that  the  net  interest  return,  after  deducting 


182  ADDRESSES  AND  PAPERS 

investment  losses,  investment  expenses,  etc.,  will 
be  at  least  sufficient  to  equal  the  interest  return  on 
the  reserve  called  for  under  the  calculation.   ; 

From  this  very  brief  statement  we  see  that  the 
most  important  consideration  before  the  trustees 
of  life  insurance  companies  is  to  invest  these  vast 
sums  so  that  the  principal  is  safeguarded  and  a 
proper  rate  of  interest  earned  to  insure  the  integrity 
of  policy  contracts. 

The  total  amount  of  insurance  in  force  in  life 
companies  in  the  United  States  was,  on  December 
31,  1911,  approximately  $18,000,000,000.  Do  you 
wonder  that  I  say  that  this  is  a  subject  of  vast  im- 
portance? The  soundness  and  permanence  of  this 
stupendous  amount  of  insurance  rest  primarily 
upon  the  proper  investment  of  life  insurance  funds 
by  the  companies'  trustees.  Can  anything  be  more 
sacred  than  the  care  of  these  trust  funds? 

Possibly  we  can  name  a  few  fundamental  prin- 
ciples which  are  essential  in  the  administration  of 
these  stewardships. 

First,  Publicity.  I  would  welcome  any  legislation 
which  will  make  it  possible  for  the  public  to  know 
every  detail  of  the  investment  departments  of  life 
companies.  Anything  which  will  lead  to  such 
knowledge,  anything  which  will  place  such  infor- 
mation before  the  public  in  comprehensible  form, 
will  do  more  than  any  restrictive  legislation  to 
break  up  dangerous  practices  and  to  correct  abuse. 


SACREDNESS  OF  TRUSTEESHIP        183 

Improper  syndicate  operations  (that  word  is  now 
unpopular,  but  there  have  been  good  syndicates), 
speculative  control  of  other  corporations,  under- 
ground channels  by  which  securities  are  introduced 
and  accepted  with  advantage  to  some  inside  clique, 
profit  by  trustees  arising  directly  or  indirectly  from 
investments  made,  all  melt  away  under  the  noon- 
day glare  of  publicity.  Legislation  in  favor  of  such 
publicity  is  none  too  popular  with  some  of  our  law- 
makers. It  is  not  spectacular,  and  there  is  always 
the  danger  that  these  searching  rays  of  publicity 
when  their  power  is  appreciated  may  be  turned  in 
unexpected  directions.  The  unscrupulous  legislator 
and  the  quasi-reformer  always  have  to  be  on  the 
alert  lest  the  remedies  they  prescribe  for  others 
may  be  applied  to  themselves. 

Second,  Personal  Responsibility,  The  trustees 
must  be  impressed  with  the  importance  and  seri- 
ousness of  their  office,  and  maladministration 
should  be  followed  by  punishment  commensurate 
with  the  magnitude  of  the  trust.  Such  punishment 
to  be  effective  must  be  directed  against  the  of  end- 
ing individual. 

With  these  two  checks  and  safeguards,  we  have 
about  all  that  is  needed  in  the  way  of  restriction.  If 
you  can  unite  simple,  plain,  and  effective  publicity 
with  strict  personal  accountability,  you  are  doing 
about  all  that  can  be  done  by  legislation  to  enforce 
honest  and  careful  conduct  by  the  trustees. 


184  ADDRESSES  AND  PAPERS 

Let  us  now  look  at  some  of  the  laws  made  to 
protect  these  funds.  Efforts  have  been  made  to 
prohibit  certain  forms  of  investments.  These  efforts 
have  usually  been  sporadic  and  short-lived.  It  has 
been  virtually  conceded  that  the  greatest  freedom 
of  choice  is  necessary  in  the  investment  of  such  vast 
funds.  New  York  State  prohibits  the  purchase  of 
stocks  and  collateral  bonds  where  a  certain  amount 
of  the  collateral  is  in  the  form  of  stock.  We  all 
know  why  that  law  was  passed.  In  the  troublous 
times  of  1906  it  seemed  to  our  legislators  necessary. 
It  was  a  method  of  checking  certain  abuses  which 
could  have  been  checked  more  wisely,  perhaps,  by 
other  methods  without  placing  on  our  statute 
books  a  law  which  apparently  condemns  all  stocks 
and  deprives  us  of  the  right  to  buy  bonds  of  abso- 
lute security,  and  of  a  form  which  is  daily  becoming 
more  popular  because  of  its  inherent  strength.  The 
compulsory  sale  of  securities  legally  purchased  was 
also  insisted  upon,  but  apparently  the  advocates  of 
this  measure  seem  willing  to  consent  to  extensions 
of  time  and  are  not  very  enthusiastic  about  its 
enforcement. 

Other  statutes  of  a  negative  character  have  been 
enacted,  but  they  are  of  minor  importance.  When, 
however,  the  lawmaker  arises  in  his  might  and 
begins  to  talk  affirmatively  and  says  to  the  trustee, 
"  Thou  shalt  invest  in  this  or  that,"  then  we  find 
the  trouble  really  begins.  Professor  Sumner  in  his 


SACREDNESS  OF  TRUSTEESHIP        185 

picturesque  style  says  most  reforms  are  the  result 
of  A  and  B  getting  together  and  deciding  what  C 
shall  do.  A  and  B  may  have  no  particular  interest 
in  what  ultimately  becomes  of  C,  but  if  they  have 
power  enough  they  can  make  it  very  uncomfortable 
for  him,  and  in  their  honest  and  misguided  enthu- 
siasm they  may  do  him  great  harm.  C  is  the 
"  forgotten  man,"  and  I  want  to  say  a  word  for  him. 

The  idea  has  arisen  of  late  in  the  minds  of  some 
that  each  State  or  locality  can  best  promote  its  own 
growth  and  prosperity  at  the  expense  of  some  other 
State  or  locality,  which  idea  is  exemplified  in  the 
efforts  made  in  certain  Commonwealths  to  pay 
their  own  expenses  by  heavily  taxing  foreign  indi- 
viduals and  corporations  who  attempt  to  do  busi- 
ness within  their  borders.  Of  late  it  has  taken  a 
new  form.  Compulsory  local  investment  of  life 
insurance  funds  has  in  certain  localities  been  en- 
acted into  law. 

When  I  hear  the  honest  promoters  of  these  laws 
advocate  their  adoption,  I  shudder  for  the  future 
of  life  insurance  investments.  Never  was  a  line  of 
action  proposed  more  inimical  to  the  interests  of 
the  policy-holder.  The  impropriety  of  segregating 
the  reserves  (upon  which  these  compulsory  invest- 
ments are  usually  based)  and  breaking  up  the 
funds  of  a  company  into  different  groups  is  appar- 
ent to  students  of  insurance,  but  the  idea  that  to 
these  trustees,  with  their  responsibility  and  per- 


186  ADDRESSES  AND  PAPERS 

sonal  accountability,  some  town,  or  county,  or 
State  shall  say,  "  You  must  invest  in  our  locality," 
seems  past  belief.  When  the  lawmakers  step  in 
between  the  policy-holder  and  the  trustee,  whom 
he,  the  policy-holder,  has  chosen,  and  attempt  to 
usurp  the  function  of  that  trustee,  what  becomes  of 
the  trustee's  responsibility,  and  who  is  going  to 
satisfy  the  policy-holder,  if  in  the  future  under  such 
mandatory  laws  good  investments  cannot  be 
found  and  bad  or  indifferently  good  investments 
have  to  be  made?  In  this  transaction  the  policy- 
holder is  manifestly  C,  the  "forgotten  man." 

Possibly  it  maybe  thought  that  I  object  to  this 
interference  because  it  comes  from  distant  quarters 
of  the  country  and  from  state  authority.  Not  at  all. 
I  believe  the  same  objection  should  be  made  to  any 
form  of  interference  with  the  trustees  in  the  exer- 
cise of  their  legitimate  functions. 

In  the  last  few  years  there  has  been  a  wonderful 
growth  of  new  companies  in  all  parts  of  the  coun- 
try. Loyalty  to  home  interests  has  in  many  in- 
stances been  the  motive  underlying  their  inception. 
Many  older  companies  have  felt  that  to  meet  this 
new  competition  they  must  in  the  investment  de- 
partment enter  new  and  untried  fields.  Nothing 
can  be  more  dangerous.  The  insurance  and  the 
investment  departments  of  any  well-regulated  and 
conservatively  managed  company  must  be  kept 
absolutely  distinct.  The  agent  when  he  says,  "You 


SACREDNESS  OF  TRUSTEESHIP        187 

must  invest  money  in  my  territory  to  aid  me  in 
securing  new  insurance,"  is  pursuing  as  reprehen- 
sible a  course  as  the  State  which  tries  to  advance 
its  interests  by  similar  mandatory  methods. 

What,  then,  should  be  the  basis  of  choice  in  select- 
ing investments?  There  can  be  no  specific  rule 
formulated.  One  company  has  for  years  been  in- 
vesting its  funds  in  farm  mortgages.  Its  trustees 
understand  that  business.  Its  record  and  experi- 
ence give  it  a  sound  basis  for  future  action.  It  is 
proper  and  natural  that  that  company  should  pre- 
fer this  form  of  security.  Another  has  made  a  spe- 
cialty of  large  loans  on  city  properties  in  all  parts  of 
the  country.  Another  has  placed  its  money  in  some 
few  great  centers.  Others  have  made  a  specialty 
of  municipal,  state,  railway,  or  general  corporation 
securities.  Why  this  divergence?  It  is  perfectly 
natural,  and  it  is  sound.  It  is  based  upon  the  pe- 
culiar conditions  surrounding  each  company,  and 
upon  the  peculiar  kind  of  knowledge  and  expe- 
rience each  company  has.  By  this  natural  choice 
based  on  knowledge  and  experience,  we  are  now 
securing  a  greater  variety  of  investments  than 
could  be  secured  in  any  other  way.  There  is  noth- 
ing mysterious  about  the  movement  of  capital. 
If  one  wishes  it  to  come  his  way,  he  must  court  it 
by  offering  ample  security,  a  satisfactory  interest 
return,  and  friendly  treatment.  One  of  the  most 
curious  inconsistencies  of  our  time  is  that  many 


188  ADDRESSES  AND  PAPERS 

communities  which  are  most  insistent  in  their  calls 
for  foreign  capital  are  most  outspoken  in  their  con- 
demnation of  that  article  which  they  so  earnestly 
crave. 

There  is  only  one  way  by  which  trustees  of  life 
insurance  companies  can  be  properly  induced  to 
enter  new  fields  of  investment.  Not  by  coercion  — 
not  by  threats  —  not  by  attack,  but  by  education. 
It  must  be  proved  to  the  trustees  that  the  security 
offered  is  sound,  and  that  the  return  is  ample,  and 
then  capital  will  soon  seek  these  new  channels,  fol- 
lowing the  simple  and  immutable  laws  of  economic 
gravitation. 

One  word  more.  If  our  insurance  companies  are 
to  be  sound  and  permanent,  we  must  eliminate  all 
sectional  feeling.  The  original  thirteen  States 
made  no  progress  toward  union  and  strength  until 
they  began  to  realize  that  their  interests  were  com- 
mon interests,  and  that  the  Puritans  of  New  Eng- 
land, the  Hollanders  of  New  York,  the  Quakers  of 
Pennsylvania,  the  aristocrats  of  Virginia,  and  the 
Catholics  of  Maryland  must  forget  their  differences 
and  unite  for  the  common  good. 

Why  can  we  not  realize  that  in  the  field  of  in- 
surance investments  the  same  holds  true?  The 
assets  of  insurance  companies  have  helped  to  build 
our  cities,  to  construct  our  railways,  to  promote  our 
industries,  to  develop  our  farms  and  to  finance  our 
municipal,  our  state,  and  national  governments. 


SACREDNESS  OF  TRUSTEESHIP        189 

We  can  well  afford  to  allow  this  divergence  in  in- 
vestments to  expand  on  natural  lines.  We  must  not 
try  to  force  it  in  one  direction  or  another  by  artifi- 
cial stimulus  which  will  inevitably  be  followed  by 
discouraging  reaction.  We  must  remember  always 
that  the  sole  duty  of  life  insurance  trustees  is  a 
simple  one;  namely,  to  conserve  as  a  sacred  trust 
the  enormous  funds  committed  to  their  charge. 
They  should  not  be  persuaded  by  pressure  from 
within  or  mandates  from  without  to  invest  in  new 
fields  until  they  have  explored  most  thoroughly  the 
unknown  land. 

Life  insurance  is  a  national  American  institution. 
Here  it  has  found  its  greatest  and  soundest  growth. 
It  is  our  duty  to  view  the  matter  of  life  insurance 
investments  on  broad  lines,  if  we  are  to  handle 
safely  and  judiciously  this  aggregation  of  wealth. 
Petty  individual  interests  must  be  forgotten;  state 
jealousies  and  rivalries  must  be  buried;  sectional 
feeling  must  be  eliminated.  The  trustees  must  be 
absolutely  free  in  the  administration  of  their  trust 
to  act  on  those  lines  which  their  own  knowledge 
may  dictate,  free  from  carping  criticism,  free  from 
outside  pressure,  free  from  legislative  interference. 
This  vast  fund  must  be  distributed  without  restric- 
tion except  as  it  is  properly  and  automatically 
restrained  by  the  rules  of  common  honesty  and 
business  intelligence,  and  by  the  unchangeable 
economic  laws  which  govern  the  ebb  and  flow  of 


190  ADDRESSES  AND  PAPERS 

capital.  All  attempts  to  check  or  alter  these  laws 
will  surely  bring  distrust  and  disaster.  In  handling 
these  vast  and  mighty  funds  in  which  millions  of 
our  people  are  so  vitally  interested,  there  is  no 
place  for  theoretical  experiment  or  for  the  pro- 
motion of  selfish  interests. 

It  is  simply  inspiring  to  contemplate  that  con- 
fidence which  leads  to  the  entrusting  of  such  an 
accumulation  of  capital  to  the  management  of 
others  for  the  common  good.  Is  not  such  a  trust 
sacred?  Do  you  wonder  that  the  executives  and 
trustees  shrink  from  following  blindly  every  new 
shift  of  popular  fancy?  Their  only  safety  lies  in 
careful,  conservative  action  based  on  knowledge 
and  experience.  The  real  check,  the  real  safeguard, 
is  publicity  and  personal  responsibility.  Push  these 
if  you  please  to  the  limit,  but  remember  that  the 
promoter,  the  speculator,  the  greedy  politician,  are 
always  eager  to  lay  their  hands  on  these  funds,  and 
the  only  defense  between  these  hostile  forces  and 
C,  the  " forgotten  man"  (the  policy-holder) ,  is  the 
conservative  trustee.  He  needs  the  appreciative 
support  of  the  insuring  public. 


THE  RELATION  OF  EXECUTIVE 
OFFICERS  AND  FIELD  MANAGERS1 

This  subject  which  has  been  assigned  to  me  is 
one  to  which  I  have  given  much  thought,  and  with 
which  I  should  be  more  or  less  familiar. 

In  these  days  it  is  popular  in  treating  a  theme 
like  this  to  analyze  and  dissect  it  in  every  detail  until 
in  the  hands  of  the  expounder  there  is  no  life  or  soul 
or  vitality  left.  This  is  the  tendency  now  in  the 
discussion  of  the  relations  between  employers  and 
employed,  between  capital  and  labor,  between  the 
various  grades  of  social  classes,  and  in  the  consider- 
ation of  most  economic  and  industrial  questions.  I 
have  no  sympathy  with  this  method.  When  an 
intricate  piece  of  machinery  is  taken  apart,  and  the 
various  component  parts  are  spread  upon  the  ar- 
tisan's bench,  one  does  not  obtain  a  very  inspiring 
notion  of  the  marvelous  mechanical  creation,  nor 
is  it  possible  to  appreciate  its  efficiency.  Intimate 
knowledge  of  the  details  is  absolutely  necessary  if 
we  are  to  arrive  at  sound  conclusions,  but  this 
knowledge  is  only  a  means  to  an  end,  and  not  the 
end  itself.  Take  the  burning  questions  of  the  day, 
how  frequently  in  their  discussion  are  the  broad, 

1  An  address  delivered  at  the  Fifth  Annual  Convention  of   the 
Home  Life  Agency  Association,  New  York,  January  14-15,  1913. 


192  ADDRESSES  AND  PAPERS 

grand  fundamental  principles,  upon  which  a  sound 
social  system  must  rest,  lost  sight  of  in  a  maze  of 
unessential  and  confusing  details  upon  which  men 
are  bound  to  disagree.  To  misdirected  effort  on 
these  narrow  lines  is  due  the  mass  of  special  legis- 
lation, unwise  restrictive  regulation,  and  conflicting 
statutes  under  which  the  business  world  is  now 
struggling,  and  which  many  well-meaning  persons 
seem  to  desire  to  see  multiplied  and  increased. 

I  shall,  therefore,  in  this  paper  limit  myself,  as 
far  as  possible,  to  the  fundamental  principles  which 
underlie  the  relationship  of  executive  officers  to 
field  managers. 

A  life  insurance  company  is  made  up  of  many 
departments,  and  a  brief  recital  of  some  of  these 
will  indicate  how  varied  are  the  matters  which  are 
placed  under  the  direction  of  its  executive  officers. 

First,  The  Insurance  Department,  which  has  to 
do  with  the  framing  of  policy  contracts  and  the  cal- 
culation of  rates  through  the  actuarial  department, 
the  placing  of  new  insurance,  the  collection  of  pre- 
miums, the  conservation  of  the  company's  out- 
standing insurance,  the  just  and  fair  treatment  of 
policy-holders,  the  settlement  of  maturing  con- 
tracts and  death  claims,  the  development  and 
direction  of  the  agency  force,  and  with  the  phy- 
sical inspection  through  the  medical  department 
of  candidates  for  insurance,  the  selection  of  new 
risks,  etc. 


OFFICERS  AND  FIELD  MANAGERS     193 

Second,  The  Investment  Department,  which  has 
charge  of  the  investment  of  the  Company's  funds. 

Third,  The  Legal  Department,  to  which  are  re- 
ferred all  matters  pertaining  to  insurance  law  and 
all  questions  of  a  legal  character. 

Fourth,  The  Clerical  and  Accounting  Departments. 

To  each  of  the  field  managers  the  executive 
officers,  by  written  contract,  entrust  to  a  greater 
or  less  degree  the  care  in  a  given  locality  of  the  col- 
lection of  premiums  on  the  company's  outstand- 
ing insurance,  the  selection  of  agents  to  represent 
his  department,  the  securing  of  new  business,  and 
a  general  oversight  of  the  company's  interest  in 
his  particular  field.  The  manager's  responsibili- 
ties and  opportunities  are  large,  but  his  powers,  as 
far  as  the  company  is  concerned,  are  sharply  re- 
stricted and  defined. 

The  above  brief  resume  gives  the  basis  of  the 
relations  existing  between  the  executive  officers 
and  the  field  managers. 

Evidently,  the  latter  have  little  or  nothing  to  do 
with  the  investment  department,  the  legal  depart- 
ment, or  the  clerical  and  accounting  departments. 
These  field  managers  are,  however,  the  bone 
and  sinew  of  the  insurance  department,  and  their 
activities  pervade  and  affect,  to  a  greater  or  less 
degree,  each  one  of  the  subdivisions  of  that  depart- 
ment. 

It  is,  therefore,  in  the  development  and  exten- 


194  ADDRESSES  AND  PAPERS 

sion  of  this  insurance  department  that  we  find  the 
executive  officers  and  field  managers  working  side 
by  side,  and  it  is  to  this  department  we  must  look 
for  a  clear  idea  of  what  the  relation  between  these 
two  sets  of  workers  is  and  what  it  should  be. 

First  of  all,  this  relation  must  be  based  upon 
order  and  system.  There  must  be  a  directing  head. 
The  industrial  development  of  our  nation  has  been 
rapid  and  intense.  Close  organization  and  combina- 
tion have  necessarily  resulted  to  the  advantage  of 
all.  Individualism  has  received  a  set-back,  and  now 
each  worker,  if  he  wishes  to  play  his  part  effectively, 
must  find  his  proper  place  in  the  intricate  organi- 
zation and  do  his  particular  task  earnestly  with 
due  regard  for  the  rights  of  those  below  him  and 
due  respect  for  the  authority  of  those  above  him. 
The  moment  he  begins  to  think  that  he,  the  indi- 
vidual, is  supreme,  that  moment,  by  reason  of  his 
own  egotism,  and  selfishness,  he  not  only  by  his 
action  renders  himself  ridiculous,  but  he  loses  his 
efficiency  in  the  industrial  world. 

For  instance,  in  an  insurance  company  such  as 
ours,  the  agents,  clerks,  and  employees  are  all  under 
the  direction  of  the  officers.  The  officers  are  re- 
sponsible to  and  subject  to  the  instruction  of  the 
board  of  directors  and  its  committees.  These  are 
chosen  by  those  members  of  the  corporation  who 
are  entitled  to  a  vote.  These  members  constitute 
the  corporation.  The  corporation  is  subject  to  the 


-OFFICERS  AND  FIELD  MANAGERS    195 

State,  and  the  State  is  the  people.  Do  not  forget 
that  in  this  instance,  we  are  all,  officers  and  agents, 
part  of  an  orderly  system,  and  consequently  sub- 
ject to  discipline  and  to  restrictions  which  we  must 
obey  unless  we  desire  to  be  classed  in  the  category 
of  disorderly  and  unruly  members  of  the  great  in- 
dustrial army. 

[  What,  then,  should  be  the  ideal  relation  between 
field  managers  and  executive  officers? 

Just  at  the  moment,  and  I  trust  this  condition 
may  soon  begin  to  wear  off,  we  are  as  a  nation  too 
analytical.  I  have  already  alluded  to  this  tendency. 
We  are  driving  out  of  our  daily  life  much  of  its 
sweetness  and  spontaneity  because  we  think  we 
should  not  do  anything  until  we  have  studiously 
and  exhaustively  submitted  that  act  to  the  most 
searching  analysis  as  to  the  causes  which  lead  up  to 
it,  the  motives  which  inspired  it,  and  the  conse- 
quences which  follow  it.  As  a  result,  artificial  and 
cold-blooded  calculation  takes  the  place  of  human 
judgment.  In  the  making  of  our  laws  the  same 
holds  true.  These  regulations  and  restrictive  laws 
now  so  popular  reach  down  into  every  detail  of  our 
business,  so  that  conscience  and  a  proper  sense  of 
right  and  wrong  are  being  replaced  by  statutes 
which  prescribe  what  we  may  not  do.  The  business 
man  does  not  now  ask  himself,  "Is  my  act  right?" 
but  "Is  my  act  legal?"  It  will  soon  be  old-fash- 
ioned to  have  an  individual  judgment  as  to  what  is 


196  ADDRESSES  AND  PAPERS 

right  and  what  is  wrong.  That  is  all  being  de- 
cided for  us  by  our  legislators.  Do  not  be  surprised, 
then,  when  I  say  I  do  not  intend  to  dissect  or  ana- 
lyze closely  the  relations  between  managers  and 
field  agents.  It  is  not  necessary.  This  relationship 
is  simply  based  on  fundamentals  as  unchangeable 
as  truth.   What  are  these  fundamentals? 

First,  mutual  respect.  This  needs  no  explanation. 
If  you  do  not  believe  in  us  and  we  do  not  believe 
in  you,  chaos  and  disorder  ensue,  and  business  can- 
not be  done. 

Second,  fairness  and  justice.  Not  only  fairness 
on  the  part  of  the  executive  to  the  field  force,  but 
equal  justice  from  the  agent  to  us.  Before  we  criti- 
cize each  other,  let  us  withdraw  from  the  heat  and 
passion  of  the  particular  point  under  discussion, 
look  at  it  from  one  side,  from  the  other  side,  from 
all  sides,  and  then  in  a  calm,  judicial  spirit  deter- 
mine what  is  best  for  all. 

Third,  charity.  A  proper  sense  of  human  frailty, 
with  a  spirit  ready  to  condone  human  weaknesses 
wherever  they  may  appear.  An  avoidance  of  fault- 
finding and  criticism  which  accomplish  nothing  and 
simply  engender  ill  will  and  bad  blood. 

Fourth,  loyalty.  This  does  not  mean  affection  and 
devotion  alone.  The  word  means  primarily  volun- 
tary submission  to  law.  It  means  in  our  relations 
an  intelligent  understanding  of  the  necessity  of 
discipline,  of  order,  and  a  ready  and  willing  acqui- 


OFFICERS  AND  FIELD  MANAGERS    197 

escence  thereto.  This  applies  to  agents  and  officers 
alike. 

Last  of  all,  community  of  interests. 

I  never  could  understand,  and  I  trust  I  may 
never  be  able  to  understand  where  there  can  be 
any  clash  between  the  agents  and  officers  unless 
some  one  of  these  fundamentals  is  violated.  We 
are  working  for  the  same  end,  the  upbuilding  and 
strengthening  of  our  company  and  of  the  business 
of  life  insurance  in  general.  Unless  either  the  officer 
or  the  agent  allows  himself  to  be  led  into  false 
lines  of  conduct  by  self-interest,  by  improper  am- 
bition, or  by  other  unworthy  motives,  there  can  be 
no  clash.  Our  lines  of  work  are  parallel.  Each  party 
should  help  the  other.  We  need  no  rules  except  the 
laws  of  common  sense,  we  need  no  regulation  save 
the  regulation  of  a  keen  and  fair  conscience.  Your 
association  has  been  a  help  to  us,  and  it  will  con- 
tinue to  be  if  these  simple  fundamentals  are  borne 
in  mind. 

When  you  asked  me  to  address  you  on  this  sub- 
ject, you  may  have  expected  a  different  presenta- 
tion of  it.  That  which  I  have  given  is  common- 
place —  much  that  I  have  said  is  trite,  but  these 
old-fashioned  fundamentals  are  essential.  Our  re- 
lations in  the  past  have  been  happy,  profitable,  and 
even  inspiring  because  they  have  been  based  on 
these  fundamentals.  May  these  same  relations  con- 
tinue for  many  years  to  come. 


THE  WORK  AND  PROBLEMS  OF  THE 
EXECUTIVE  DEPARTMENT1 

The  programme  which  I  have  received  of  the 
life  insurance  course  now  being  given  here  indicates 
that  the  matter  has  been  prepared  with  the  most 
extreme  care,  and  that  it  is  your  purpose  to  treat 
the  subject  exhaustively  and  to  familiarize  your- 
selves  with  all  of  the  details  connected  with  this 
most  intricate  business. 

The  subject  which  you  have  allotted  to  me  is 
one  which  might  be  handled  in  a  popular  and  gen- 
eral way,  and  an  interesting  paper  could  undoubt- 
edly be  prepared  on  these  lines,  but  this  would 
hardly  meet  your  requirements.  In  fact,  as  I  con- 
sider my  subject,  namely,  "The  Work  and  Prob- 
lems of  the  Executive  Department,"  it  seems  to  me 
you  are  expecting  an  autobiography,  a  form  of  lit- 
erature which  has  never  appealed  strongly  to  me. 

However,  in  view  of  the  fact  that  the  subject 
has  been  chosen  for  me,  I  shall,  without  apology, 
endeavor  to  give  you  an  idea  of  the  duties  and  ex- 
periences of  a  life  insurance  executive.  I  shall  try 
to  show  the  great  variety  of  problems  which  the 
executive  has  to  face,  and  in  so  doing  it  will  be  nec- 

1  An  address  delivered  at  Western  Reserve  University,  in  con- 
nection with  its  course  of  lectures  on  life  insurance,  March  13,  1913. 


THE  EXECUTIVE  DEPARTMENT       199 

essary  for  me  to  touch  upon  all  of  the  departments 
of  the  business,  many  of  which  have  been  or  are  to 
be  discussed  by  separate  papers,  and  point  out  to 
you  the  relation  of  the  executive  to  these  depart- 
ments. I  can  see  no  other  way  of  laying  the  subject 
clearly  before  you,  although  this  method  of  treat- 
ment is  open  to  the  objection  that  it  is  likely  to  be 
rather  dry  and  uninteresting  in  places,  and  yet 
none  of  this  matter  can  be  omitted  if  we  are  to 
secure  satisfactory  results. 

I  am  naturally  glad  of  this  opportunity  of  ap- 
pearing before  you,  for  possibly  I  may  be  able  to 
clarify  your  understanding  of  the  general  subject 
which  you  are  now  investigating,  and  I  trust  I 
may  be  able  to  dispel  the  unwarranted  views  now 
held  by  some  regarding  corporate  life  in  general. 

In  the  first  place,  we  must  remember  that  cor- 
porations are  nothing  more  or  less  than  aggrega- 
tions of  individuals  banded  together  for  a  common 
cause  and  purpose.  There  is  nothing  mysterious 
or  incomprehensible  about  them.  They  are  the 
natural  and  logical  outcome  of  our  complex  and 
highly  organized  business  life.  They  are  neces- 
sary to  our  growth,  they  are  effective  machines 
for  the  upbuilding  and  development  of  our  eco- 
nomic activities.  The  present  prejudice  against 
them  which  exists  in  certain  quarters  rests  upon  a 
nebulous  understanding  of  what  they  are,  an  en- 
vious dread  of  their  constantly  increasing  power, 


200  ADDRESSES  AND  PAPERS 

or  upon  an  exaggerated  idea  of  certain  evils  which 
have  been  wrought  in  the  past  by  unscrupulous  or 
dishonest  managers.  I  almost  wish  my  subject 
were  the  "  Value  of  Corporations  to  the  Youth  of 
the  Country"  that  I  might  point  out  to  you  how 
their  existence  and  promotion  has  opened  to  every 
one,  with  or  without  capital,  with  or  without  in- 
fluence, vast  fields  of  activity  with  assurance  of 
success  and  adequate  reward  as  the  result  of  in- 
dustry, originality,  and  brains.  The  young  man 
of  to-day  leaves  his  university  in  an  era  when  the 
world  is  calling  for  real  service  and  all  he  has  to  do 
is  to  find  where  his  talents  can  best  be  employed. 
There  never  was  a  time  when  a  young  man  depen- 
dent upon  himself  alone  could,  with  a  sound  educa- 
tion and  fair  personal  qualifications,  step  out  from 
his  university  into  the  great  seething  world  of  af- 
fairs with  more  confidence  of  ultimate  success. 
This  condition  is  largely  due  to  the  power  which 
corporations  have  of  searching  out  and  discover- 
ing talent  which  may  be  hidden  in  obscure  corners 
and  of  offering  to  that  talent  a  proper  channel  for 
growth  and  greater  efficiency. 

This  is  all  a  passing  and  somewhat  irrelevant 
comment  which  I  feel  I  must  make,  for  from  ex- 
perience I  know  how  anxiously  you  are  all  looking 
forward  to  the  development  of  your  own  careers 
with  occasional  misgivings  regarding  the  future,  and 
I  want  you  to  approach  this  subject  with  the  feel- 


THE  EXECUTIVE  DEPARTMENT       201 

ing  that  these  corporations  are  a  necessary  and 
beneficent  part  of  our  present  economic  system, 
and  that  in  all  probability  many  of  you  will  find 
in  them  the  field  of  your  future  activity. 

First  of  all,  successful  corporation  life  is  depen- 
dent on  close  and  intelligent  organization.  The 
work  of  the  corporations  must  be  divided  among 
departments  each  with  a  well-defined  scope  of 
activity  and  each  presided  over  by  a  head  who  is 
held  absolutely  responsible  for  the  success  and 
efficiency  of  his  department.  These  chiefs  must 
confer  frequently  and  are  compelled  constantly  to 
change  their  methods  of  work  in  order  to  meet  the 
new  conditions  which  are  ever  arising.  This  is  true 
of  all  corporations  —  industrial,  transportation, 
and  financial.  These  departmental  chiefs  also  re- 
port to  the  executive  and  are,  of  course,  subject  to 
instructions  and  suggestions  from  him.  This  brings 
us  to  a  fundamental  principle  of  corporation  life. 
It  is  not  necessary  that  the  executive  should  be 
absolutely  familiar  with  all  details,  nor  is  it  essen- 
tial that  he  should  know  how  each  department 
conducts  its  work;  but  he  must  know  the  net  result 
accruing  from  each  department  —  he  must  be  able 
to  pass  upon  its  efficiency,  he  must  be  able  to  de- 
tect careless  method  and  extravagant  expenditure, 
he  must  be  able  to  see  that  the  output  of  each 
department  measures  up  to  the  highest  standard 
both  in  quantity  and  quality,  and  more  than  all 


202  ADDRESSES  AND  PAPERS 

else  he  must  be  able  to  appreciate  at  all  times  the 
relative  importance  and  value  of  the  work  of  the 
various  departments. 

In  other  words,  it  is  his  duty  to  detect  and  elim- 
inate injustice,  waste,  and  extravagance,  and  to  pro- 
mote economy,  efficiency,  and  proper  coordination. 

Another  point  must  be  constantly  borne  in  mind. 
The  executive  is  the  servant  and  representative  of 
the  board  of  directors.  The  supervision  of  the 
board  is  primarily  exercised  by  committees.  The 
success  of  a  corporation  and  of  the  executive  as 
well  is  in  a  large  measure  due  to  the  efficiency  of 
these  committees.  In  this  connection  it  is  only  fair 
to  state  that  on  the  subject  of  choice  of  directors 
there  is  at  the  present  time  an  immense  amount  of 
careless  thought  and  unwarranted  statement  based 
upon  class  prejudice  and  fallacious  reasoning. 

Following  the  plan  of  organization  already  out- 
lined, we  find  that  in  the  specific  corporations  we 
are  considering,  namely,  life  insurance  companies, 
the  following  are  the  principal  departments :  — 

1.  The  Actuarial  Department. 

2.  The  Clerical  and  Accounting  Department. 

3.  The  Correspondence  and  Claim  Department. 

4.  The  Reinstatement  Department. 

5.  The  Medical  and  Underwriting  Department. 

6.  The  Agency  Department. 

7.  The  Legal  Department. 

8.  The  Investment  Department. 


THE  EXECUTIVE  DEPARTMENT       203 

Let  us  briefly  review  these  various  departments 
in  order  that  we  may  gain  an  idea  of  the  scope  and 
diversity  of  the  work  of  the  ideal  executive. 

The  Actuarial  Department:  To  this  department  is 
entrusted  the  calculation  of  premium  rates,  policy 
reserves,  surrender  values,  surplus  distribution, 
etc.,  and  in  consultation  with  the  legal  department, 
the  framing  of  policy  contracts.  The  work  of  this 
department  is  extremely  technical,  demanding  the 
highest  degree  of  mathematical  skill,  coupled  with 
rare  business  judgment.  It  is  the  corner-stone  of 
the  company's  structure,  and  upon  its  accuracy 
depends  the  success  of  the  institution.  In  this  line 
of  insurance  work  there  is  vast  opportunity  for  men 
of  broad  education  and  special  training  in  this  par- 
ticular science.  In  general,  it  is  wise  for  the  execu- 
tive, even  if  he  has  a  somewhat  intimate  knowledge 
of  the  science  of  life  insurance,  to  refrain  from  in- 
terference with  this  department,  limiting  his  activ- 
ities solely  to  the  selection  of  the  very  best  actua- 
ries he  can  find  and  offering  his  counsel  only  in 
matters  where  business  prudence  or  expediency  are 
determining  factors. 

The  Clerical  and  Accounting  Department:  Here 
we  find  the  executive  confronted  by  a  mass  of  detail 
which  is  almost  overwhelming,  and  yet  he  cannot 
afford  to  be  ignorant  of  the  methods  of  this  depart- 
ment. Through  it  the  funds  of  the  company  are 
collected  from  thousands  of  policy-holders  and 


204  ADDRESSES  AND  PAPERS 

distributed  through  the  proper  channels.  He  must 
know  enough  to  assure  himself  that  this  is  accom- 
plished with  accuracy  and  despatch.  If  this  is  not 
the  case,  he  must  himself  suggest  the  remedy  or 
select  some  new  head  who  is  able  to  do  so.  This 
seems  like  an  uninteresting  department  and  one  so 
full  of  routine  that  the  executive  head  of  the  cor- 
poration may  almost  look  upon  its  workings  as 
automatic.  This  is  a  grave  error.  Waste  of  labor, 
lack  of  system,  retention  of  old  methods  which 
should  be  discarded,  useless  "red  tape,"  in  this 
department,  are  to-day  sapping  the  vitality  and 
retarding  the  progress  of  many  of  our  otherwise 
well-managed  corporations.  Traditions  if  bad  must 
be  abandoned,  dead  wood  lopped  off,  practical  and 
safe  short  cuts  adopted  if  we  are  to  have  true 
efficiency,  and  to  accomplish  this  the  alert  depart- 
mental chief  must  always  have  the  intelligent  sup- 
port and  encouragement  of  his  superior  officer. 

The  Correspondence  Department:  With  this  de- 
partment, for  the  purpose  of  this  paper,  we  may 
link  the  claim  department  and  the  reinstatement 
department.  These  departments  are  all  of  great 
importance  and  have  to  be  handled  with  extreme 
care  if  the  best  results  are  to  be  obtained.  The 
policy-holders,  scattered  as  they  are  over  the  whole 
world,  have,  in  most  instances,  no  means  of  com- 
municating with  the  company  except  by  corre- 
spondence.   This  correspondence  is  tremendously 


THE  EXECUTIVE  DEPARTMENT       205 

voluminous  and  covers  every  phase  of  human 
activity.  Coming  from  people  in  all  walks  of  life, 
its  variety  is  simply  astonishing.  It  is  inquisitive, 
analytical,  flattering,  serious,  sarcastic,  threaten- 
ing, and  appreciative.  It  must  all  be  attended  to 
promptly  and  tactfully.  The  policy-holder  regards 
the  executive  as  his  servant,  and  he  is  right  in 
his  conclusion.  Therefore,  he  administers  his  re- 
bukes without  apology,  and  frankness  of  utterance 
is  a  characteristic  of  his  letters.  In  a  well-con- 
ducted company,  criticism  from  the  policy-holder 
is  usually  the  result  of  misapprehension  on  his 
part  or  arises  from  suggestion  made  by  outside 
meddlers. 

All  these  matters,  small  in  themselves,  require 
intelligent  handling,  for  a  dissatisfied  or  neglected 
policy-holder  is  a  company's  worst  enemy.  He 
loves  to  talk  about  his  grievances.  Take  the  matter 
of  reinstatements.  A  policy-holder  allows  his  policy 
to  lapse.  It  is  our  duty  to  find  out  the  reason. 
Correspondence  is  at  once  opened  with  him.  If  dis- 
satisfied, he  must  be  shown  that  there  is  no  ground 
for  criticism.  If  he  pleads  poverty,  the  company 
must  help  him  if  it  can.  All  of  his  objections  must 
be  met.  Can  you  not  see  that  this  requires  judg- 
ment and  discretion  of  the  highest  order? 
t  Settlement  of  claims  (endowments,  death  claims, 
etc.)  is  a  matter  of  paramount  importance.  These 
settlements  must  be  promptly  made  with  the  least 


206  ADDRESSES  AND  PAPERS 

possible  annoyance,  trouble  and  expense  to  the 
beneficiary. 

In  all  these  relations  between  the  home  office  and 
the  policy-holder,  courtesy  and  infinite  patience  are 
demanded  from  the  company's  representatives. 
But  you  will  naturally  ask,  what  has  the  executive 
to  do  with  all  this?  No  matter  how  large  the  com- 
pany may  be,  the  executive  must  keep  a  close 
watch  on  these  departments  and  see  that  they  are 
conducted  in  a  proper  spirit  and,  by  his  own  action 
in  his  dealings  with  the  policy-holders,  set  an 
example  of  polite  attention  and  gentlemanly  for- 
bearance which  will  inculcate  throughout  the  en- 
tire organization  a  realization  of  the  fundamental 
fact  that  the  policy-holder  is  the  real  proprietor  in 
a  life  insurance  company.  Whether  approached  by 
letter  or  by  personal  interview,  the  executive  must 
be  accessible  to  the  policy-holders  and  attentive  to 
their  demands,  for  it  is  always  to  be  remembered 
that  the  influence  exerted  by  the  executive  per- 
meates every  department  and  his  method  of  proce- 
dure becomes  the  practice  of  the  company. 

In  these  departments  of  which  we  are  speaking, 
the  basis  of  successful  work  is  proper  treatment  of 
the  policy-holder.  That  treatment  must  of  neces- 
sity oftentimes  be  apparently  harsh,  but  it  must  be 
just,  logical,  and  honest,  and  every  effort  must  be 
made  where  there  is  a  difference  of  opinion  to  con- 
vince the  complaining  member  that  the  company's 


THE  EXECUTIVE  DEPARTMENT      207 

position  is  sound.  If  this  line  of  action  is  always 
maintained  by  the  executive  and  insisted  upon  all 
through  the  organization,  it  is  wonderful  how  much 
friction  and  discontent  can  be  eliminated,  for  the 
great  majority  of  complaints  arise  from  ignorance 
or  misapprehension. 

The  Medical  and  Underwriting  Department:  It  is 
manifest  that  the  selection  of  desirable  risks  in- 
volves first  a  careful  analysis  of  the  physical  aspect 
of  each  case,  which  work  naturally  is  delegated  to 
the  medical  department.  From  the  very  nature  of 
the  case,  the  executive  is  not  supposed  to  have 
knowledge  on  these  subjects.  All  he  has  to  do  is  to 
organize  and  equip  the  department  efficiently  and 
watch  closely  the  results  of  its  work.  When  it 
comes  to  passing  upon  the  desirability  of  accepting 
a  risk  on  account  of  its  moral  aspect,  its  environ- 
ment, etc.,  or  where  business  questions  are  in- 
volved, naturally  the  executive  is  frequently  con- 
sulted, and  in  fact  he  should  directly  or  indirectly 
watch  carefully  these  decisions.  His  duties  in  this 
direction  are  too  obvious  to  need  further  comment. 

The  Agency  Department:  Here  is  a  field  which 
demands  the  constant  attention  of  the  executive. 
This  department  is  the  center  from  which  the  life 
blood  of  the  company  flows.  Upon  its  proper  oper- 
ation depends  the  company's  progress  and  success, 
and  in  its  management  there  is  a  demand  for  execu- 
tive and  administrative  qualities  of  the  very  high- 


208  ADDRESSES  AND  PAPERS 

est  grade.  The  successful  agent  is  alert,  resourceful, 
intelligent,  and  self-confident.  Conscious  of  his 
own  ability  in  his  particular  sphere,  he  will  not 
countenance  restraint  or  dictation  until  he  is  con- 
vinced that  such  checks  are  based  upon  sound 
reasoning  and  are  for  the  general  good, — and  there 
is  no  reason  why  he  should. 

To  secure  the  services  of  such  men,  and  what  is 
more,  to  retain  such  services  is  no  easy  task.  This, 
particularly  the  latter,  can  only  be  done  by  winning 
absolutely  their  confidence  and  esteem.  I  might 
almost  say  their  affection.  Possibly  my  own  experi- 
ence may  have  been  peculiar,  but  in  a  compara- 
tively small  company,  such  as  the  one  I  represent, 
I  know  that  the  best  results  can  only  be  obtained  in 
the  agency  department  when  intimate  relations  are 
established  and  mutual  confidence  exists  between 
the  agents  and  the  executive,  and  my  observation 
leads  me  to  believe  that  this  is  the  case  in  the  larger 
companies  as  well. 

The  life  insurance  executive,  to  be  thoroughly 
efficient,  should  be  a  good  agency  man.  I  mean  by 
that  he  should  understand  and  appreciate  the  char- 
acter of  the  work  which  is  being  done  by  the  agents; 
he  should  be  a  student  of  local  conditions  in  the 
sections  where  his  company  is  represented;  and  by 
constant  reports  from  the  field,  he  should  at  all 
times  have  an  intelligent  idea  of  the  net  results 
accruing  from  the  work  of  each  important  agency. 


THE  EXECUTIVE  DEPARTMENT      209 

No  company  is  so  large  that  this  cannot  be  accom- 
plished by  proper  system,  and  to  me  it  seems  that 
without  such  knowledge  upon  which  to  base  his 
general  policy  no  executive  can  fully  meet  the 
requirements  of  his  position.  The  agency  depart- 
ment is  the  source  of  all  growth,  and  unless  a 
company  is  to  lapse  into  general  decadence  and 
liquidation,  there  must  be  strong,  intelligent,  virile 
management  of  this  department.  To  secure  the 
best  results,  the  agents  must  feel  that  at  all  times 
their  individual  work  is  under  the  close  and  sympa- 
thetic supervision  of  the  executive.  This  all  de- 
mands from  the  executive  constant  watchfulness, 
close,  analytical  inspection,  and  absolute  fairness 
of  judgment.  It  is  a  difficult  department  to  direct 
successfully,  but  no  executive  has  made  a  great 
success  in  life  insurance  who  has  not  been  able  to 
meet  its  problems  ably  and  wisely.  Its  require- 
ments cannot  be  brushed  aside  or  entirely  dele- 
gated to  others. 

The  Legal  Department :  In  olden  days  the  histo- 
rian, who  told  his  story  in  song,  when  he  found  him- 
self approaching  a  difficult  part  of  his  narrative, 
was  wont  to  pause  and  invoke  the  sacred  Muses  to 
aid  him  in  his  feeble  endeavors.  Would  there  were 
some  wise  goddess  of  life  insurance  upon  whom  I 
might  now  call  for  aid  and  guidance  in  describing 
this  most  trying  subdivision  of  my  subject.  The 
legal  department,  which  has  to  do  with  all  legisla- 


210  ADDRESSES  AND  PAPERS 

tive  matters,  is  a  busy  part  of  our  life  companies  at 
the  present  time,  and  the  executive,  if  he  wishes  to 
be  a  law-abiding  citizen,  leads  a  strenuous  life  as  he 
follows  the  vagaries  of  our  various  Legislatures. 
I  wish  to  be  moderate  in  my  statements  regarding 
the  problems  of  this  department,  but  I  do  not  in- 
tend for  mere  reasons  of  expediency  to  understate 
the  existing  difficulties.  They  are  a  menace  to  the 
business  and  are  not  understood  by  the  people  at 
large.  I  speak  frankly,  for  I  believe  you  are  seeking 
the  truth  whether  it  be  agreeable  or  not.  Virtually 
all  life  companies  are  creatures  of  the  State,  incor- 
porated under  state  charters,  and  when  a  company 
of  one  State  does  business  in  another  State,  it  has 
to  comply  with  the  regulations  imposed  by  that 
State;  therefore,  if  a  company  does  business  in 
every  State,  it  is  subject  to  forty-eight  sets  of  stat- 
utes, which,  when  placed  side  by  side,  make  a  crazy- 
quilt  of  legal  enactments  which  is  dazzling  and  be- 
wildering to  any  one  who  is  not  morally  color  blind. 
Some  years  ago  the  States  in  the  main  limited  their 
activities  to  the  enactment  of  laws  covering  the 
matter  of  taxes,  licenses,  etc.,  which  were  largely 
local  in  their  application,  and  these  laws,  even  if 
unwise  in  some  instances,  were  defensible,  because 
they  covered  matter  within  the  natural  scope  of 
state  authority.  Of  [late,  however,  following  the 
general  tendencies  of  the  times,  the  spirit  of  regu- 
lation has  expanded,  and  now  there  is  hardly  a 


THE  EXECUTIVE  DEPARTMENT      211 

single  department  of  our  business  which  is  not  the 
subject  of  legislation  by  some  State. 

As  I  am  preparing  this  article,  I  find  upon  my 
desk  a  communication,  marked  "  Attention  of  the 
President,"  which  informs  me  that  a  hearing  in 
reference  to  federal  supervision  of  insurance  com- 
panies is  to  be  held  in  Washington  on  February  21 ; 
also  in  four  States,  bills  are  under  consideration 
requiring  compulsory  local  investments,  and  that 
four  other  States  are  about  to  prepare  new  insur- 
ance codes;  that  tax  increases  are  to  be  advocated 
in  three  legislatures;  and  state  life  insurance  in  six. 
This  is  only  the  record  of  one  day,  but  is  interesting 
as  showing  how  strenuous  the  situation  is  in  regard 
to  state  legislation. 

This  is  followed  by  advices  that  the  Insurance 
Department  of  one  of  our  important  States  is 
about  to  advocate  the  passage  of  a  law  which,  as  it 
appears  to  us,  aims  to  provide  that  every  company 
doing  business  in  that  State  shall  have  one  citizen 
of  that  State  in  its  board  of  directors,  and  that  the 
value  of  the  vote  of  that  director  as  compared  to 
that  of  all  the  board  shall  be  equal  to  the  ratio 
which  the  company's  insurance  in  force  in  that 
State  bears  to  the  total  insurance  in  force  of  the 
company.  If  each  of  the  forty-eight  States  were  to 
adopt  such  a  law,  the  charters  of  the  companies 
would  have  to  be  changed  to  provide  places  enough 
in  the  boards,  but  I  presume  this  is  a  negligible 
objection. 


212  ADDRESSES  AND  PAPERS 

From  January  1  to  February  13  (forty-four  days) 
I  have  received  advices  of  nine  hundred  and  eighty- 
nine  proposed  bills  affecting  our  business,  or  an 
average  of  twenty-two  per  day.  It  appears  to  be  a 
prolific  year. 

Deposits  of  securities  in  the  various  States  with- 
out providing  in  many  instances  proper  checks  and 
safeguards,  mandatory  laws  regarding  investments 
(manifestly  unsound  and  indefensible),  laws  re- 
garding the  interpretation  of  policy  contracts, 
limitation  of  executive  power,  prohibition  of  trans- 
fer of  legal  actions  from  state  to  federal  courts, 
laws  regarding  distribution  of  surplus,  laws  declar- 
ing policies  incontestable  for  material  misstate- 
ments in  the  application  or  for  suicide  in  the  early 
life  of  the  policy:  these  are  a  few  of  the  subjects 
touched  upon. 

Were  we  dealing  with  only  one  authority,  it 
would  be  comparatively  simple  to  meet  the  legis- 
lation of  that  authority,  bearing  with  evil  legisla- 
tion for  a  time,  and  finally  by  education  securing 
its  repeal,  but  imagine  the  difficulty  which  presents 
itself  to  the  executive  when  he  finds  that  something 
which  he  is  doing  is  legal  in  New  York,  allowed  in 
Colorado,  and  prohibited  in  South  Carolina.  He 
has  to  consider  in  transacting  the  business  in  each 
one  of  these  forty-eight  States  exactly  what  the 
requirements  of  that  particular  State  may  be.  His 
only  relief,  when  he  finds  the  condition  intolerable 


THE  EXECUTIVE  DEPARTMENT      213 

is  to  sacrifice  money  expended  in  the  past  for  devel- 
opment of  agency  efficiency,  retire  from  the  State, 
and  leave  the  insurance  which  has  already  been 
written  in  that  State  as  an  easy  prey  to  the  attacks 
of  competing  companies. 

It  is  only  proper  to  say  that  the  inclination  of  the 
broader  men,  among  the  insurance  commissioners, 
is  all  toward  securing  uniformity  of  legislation,  but 
the  progress  which  is  being  made  in  this  direction  is 
necessarily  slow  and  disappointing.  The  commis- 
sioners have  not  the  power  of  legislation,  and  as  a 
rule,  when  they  have  from  experience  gained  a  fair 
knowledge  of  the  business,  their  term  of  office 
expires  and  they  are  succeeded  by  new  and  untried 
men. 

Federal  supervision  is  out  of  the  question  at  the 
present  time,  for,  under  the  ruling  of  our  Supreme 
Court,  life  insurance  is  not  considered  as  interstate 
commerce.  The  greatest  difficulty  of  all  is  that  this 
system  of  detailed  supervision  by  the  various 
States  has  led  to  legislation  which  I  regret  to  say  in 
many  instances  is  based  upon  pure  selfishness. 
The  amount  of  premiums  collected  in  a  State  is  a 
matter  easily  determined  from  the  annual  reports. 
It  offers  a  most  alluring  basis  of  taxation.  If  a 
scheme  can  be  devised  by  a  State  by  which  a  tax 
can  be  levied  upon  the  premium  receipts,  and  that 
tax,  after  being  paid  by  the  company,  charged  in 
its  general  expense  account,  nothing  can  be  more 


214  ADDRESSES  AND  PAPERS 

gratifying  to  the  State  imposing  the  tax,  provided 
it  has  no  civic  conscience,  and  the  citizens  unfortu- 
nately are  apt  to  indorse  the  action  of  their  repre- 
sentatives who  pursue  this  policy.  The  feeling 
seems  to  exist  in  the  minds  of  many  that  taxes  so 
levied  are  paid  by  a  corporation,  an  intangible 
entity.  Apparently  it  is  not  realized  that  this 
tax  becomes  part  of  the  general  expense  and  is 
charged  against  all  the  policy-holders.  In  other 
words,  a  policy-holder  living  in  England,  Europe, 
or  Australia,  if  he  analyzes  the  accounts  of  his  com- 
pany, finds  that  part  of  his  premium  has  gone  to 
pay  the  general  expenses  of  the  State  of  Kansas  or 
Pennsylvania. 

The  total  taxes  paid  to  the  various  States  in  1911 
by  life  companies  amounted  to  $12,000,000.  Real 
estate  taxes  are  not  included.  Whoever  benefited 
from  these  taxes,  we  must  not  forget  that  the 
policy-holders  paid  them. 

I  wish  that  I  had  sufficient  time  to  call  your  at- 
tention to  some  of  the  specific  and  glaring  differ- 
ences in  the  laws  of  the  various  States  which  make 
it  almost  impossible  for  us  to  comply  with  all  of  the 
regulations,  but  I  think  I  have  said  enough  on  this 
subject  to  show  you  what  the  real  situation  is. 

These  statutes  have  been  described  by  one  gen- 
tleman in  the  business  as  a  "  mystic  maze  of  multi- 
tudinous mandates."  When  we  study  these  various 
statutes  we  find  that  those  which  are  open  to  criti- 


THE  EXECUTIVE  DEPARTMENT      215 

cism  arise  in  the  main  from  an  entirely  mistaken 
idea  of  what  true  statesmanship  should  be,  and 
from  a  lack  of  knowledge  of  the  fundamental  prin- 
ciples'of  our  business.  In  these  times  our  old  idols 
are  being  destroyed.  Our  faith  in  the  Constitution 
is  being  sorely  tried,  and  our  belief  in  the  men  who, 
during  the  formative  period  of  our  country's  his- 
tory, did  magnificent  constructive  work,  is  now 
being  shaken  by  attacks  and  by  statements  that 
what  they  did  was  unpatriotic  and  un-American. 
The  idea  of  our  government  when  it  was  formed 
was  that  the  federation  of  the  original  States  was 
for  the  purpose  of  mutual  aid  and  assistance,  and 
it  was  by  the  suppression  of  individualism  that 
the  country  made  its  first  progress.  We  find  now 
running  all  through  this  state  legislation  on  life 
insurance  a  manifest  desire  on  the  part  of  one 
State  to  get  the  better  of  another,  and  on  the  part 
of  one  class  of  citizens  to  reap  advantage  at  the 
expense  of  another  class.  There  can  be  no  more 
dangerous  or  iniquitous  basis  of  legislation  than 
this,  and  if  in  connection  with  your  study  of  life 
insurance  measures  you  will  make  it  a  point  to 
follow  what  is  going  on  in  the  various  States,  you 
will  see  that  there  is  not  a  particle  of  exaggeration 
in  the  above  statement.  I  wish  to  lay  particular 
stress  upon  this  point,  because  it  is  the  young  men 
of  our  colleges  who  are  to  be  the  future  members  of 
our  Legislatures,  and  it  will  rest  with  them  to  over- 


216  ADDRESSES  AND  PAPERS 

come  the  present  tendency  on  the  part  of  Legisla- 
tures and  commissions,  which  appear  to  be  willing, 
on  the  most  superficial  observation  and  with  inade- 
quate knowledge  of  the  subject,  hastily  to  put  upon 
the  statute  books  drastic  legislation  that  is  bound 
to  be  injurious  to  all  concerned. 

In  this  connection  the  old  saying  occurs  to  me 
that  "  it  is  not  so  much  the  ignorance  of  mankind 
that  makes  them  ridiculous  as  their  knowing  so 
much  that  is  not  so." 

I  wish  it  to  be  clearly  understood  that  I  am  not 
opposed  to  legislation  which  does  away  with  abuses 
and  corrects  evils  and  is  for  the  good  of  the  policy- 
holder. Such  legislation  is  necessary,  but  should  be 
simple,  effective,  and,  as  far  as  possible,  uniform  in 
the  various  States.  It  should  rest  upon  a  few  broad 
basic  principles,  which  are  essential,  and  these 
should  be  thoroughly  understood  and  appreciated 
before  any  legislation  is  attempted.  Detailed  su- 
pervision and  regulation  in  so  complex  a  business  as 
life  insurance  is  to  my  mind  unwise  and  unprofit- 
able. The  remedy  for  evil  rests  in  the  main  in  clear 
publicity  and  in  imposing  personal  responsibility, 
and  these  can  be  easily  secured.  I  have  great  faith 
that  in  the  future  these  evils  will  gradually  correct 
themselves,  particularly  if  the  people  take  the  pains 
to  educate  themselves  thoroughly  on  these  sub- 
jects which  they  are  now  so  boldly  attacking,  and 
in  view  of  my  feeling  I  regard  courses  of  lectures, 


THE  EXECUTIVE  DEPARTMENT       217 

such  as  you  have  now  initiated  here,  as  a  sign  of 
great  promise.  Such  educational  means  will  in 
time  surely  do  much  to  correct  present  tendencies. 

Before  leaving  this  part  of  our  subject,  I  wish  to 
emphasize  the  fact  that  my  feeling  is  not  entirely 
due  to  my  point  of  view  as  an  executive. 

The  Superintendent  of  Insurance  of  the  State  of 
New  York,  alluding  to  the  difficulties  arising  from 
state  supervision,  says :  "  The  frequency  with  which 
trouble  of  this  kind  seems  to  threaten,  even  if  it 
does  not  actually  always  engulf  us,  makes  me  at 
times  wish  from  the  bottom  of  my  heart  that  we 
could  have  a  system  of  national  supervision  in  the 
United  States." 

Investment  Department:  I  notice  by  your  pro- 
gramme that  this  department  is  to  be  treated  in  a 
subsequent  lecture;  therefore,  it  is  not  necessary 
for  me  to  describe  it  at  length.  It  is  a  very  impor- 
tant department,  and  one  to  which  the  executive 
must  give  constant  attention.  The  safety  and  in- 
tegrity of  the  company's  funds  are  of  paramount 
importance.  In  the  handling  of  these  vast  sums  of 
money  absolute  integrity  is  essential  and  a  high 
degree  of  courage  and  independence  of  judgment 
must  be  maintained.  The  executive  must  set  his 
face  firmly  against  the  persuasive  appeals  of  inter- 
ested parties  as  well  as  against  the  mandatory 
requirements  of  other  States  whenever  he  feels 
that,  by  following  the  natural  and  easy  course  of 


218  ADDRESSES  AND  PAPERS 

acquiescence,  the  interests  of  the  whole  body  of 
policy-holders  will  be  endangered.  He  must  keep 
ever  before  him  the  sacredness  of  his  trust  and  a 
proper  appreciation  of  his  own  personal  responsi- 
bility. I  have  spoken  of  the  tendency  in  certain 
directions  toward  compulsory  investment  in  local 
securities.  There  never  was  a  more  subtle  or  dan- 
gerous thought  promulgated.  It  strikes  at  the 
heart  of  independent  judgment;  and,  as  a  promi- 
nent writer  on  Insurance  has  recently  said,  "takes 
away  from  trustees  substantially  all  rights  of 
choice,  all  exercise  of  discretion,  but  does  not  at 
the  same  time  relieve  them  of  any  responsibility." 

Although  this  paper  has  already  exceeded  the 
length  which  I  intended,  I  feel  that  I  need  not 
apologize,  for  you  have  given  me  a  vast  subject 
and  I  have  touched  only  the  main  points. 

In  conclusion,  we  find  that  the  "Work  and  Prob- 
lems of  the  Executive  Department"  are  most  di- 
verse and  varied.  They  have  to  do  with  many  dif- 
ferent forms  of  activity.  They  are  full  of  human 
interest,  but  above  all  it  is  the  duty  of  the  execu- 
tive to  stand  always  as  the  defender  and  champion 
of  honest,  legitimate  life  insurance.  Just  at  the 
present  time,  when  the  air  is  full  of  vague  theories 
and  ill-digested  plans  for  the  amelioration  of  every- 
thing, the  executives  of  life  companies  find  the 
institutions  they  represent  assailed  by  new  and 


THE  EXECUTIVE  DEPARTMENT      219 

dangerous  schemes  of  reform.  This  grand  bul- 
wark, erected  to  stem  the  tide  of  national  extrava- 
gance and  to  shelter  our  people  from  the  economic 
loss  incident  to  the  uncertainty  of  human  life,  must 
be  preserved  in  all  its  pristine  strength  and  rugged 
simplicity.  For  years  it  has  fulfilled  its  mission 
well.  Let  us  beware  how  we  tamper  with  its  broad 
foundations  or  weaken  its  magnificent  superstruc- 
ture under  the  advice  of  quasi-engineers,  who  would 
substitute  cheaper  materials  and  methods  for  those 
which  we  have  found  so  reliable  in  the  past.  The 
honest,  upright,  courageous  executive,  surrounded 
by  a  loyal  band  of  trustees,  who  share  his  views  and 
support  him  in  his  work,  must  be  the  defense  be- 
tween these  hostile  forces  and  the  policy-holder. 


ADDRESS  AS  CHAIRMAN 

OF  THE  SEVENTH  ANNUAL  MEETING  OF  THE 
ASSOCIATION  OF  LIFE  INSURANCE  PRESI- 
DENTS, HOTEL  ASTOR,  NEW  YORK,  DECEM- 
BER  11,    1913 

Gentlemen  of  the  Association,  —  Your  ex- 
ecutive committee  has  chosen  me  to  act  as  chair- 
man of  this  meeting.  That  you  may  not  entirely 
lose  confidence  in  that  committee,  I  desire  to  say 
that  as  one  of  its  members  I  voted  in  opposition 
to  this  choice. 

Ever  since  our  first  annual  meeting  in  1907,  when 
the  keynote  of  this  organization  was  so  clearly 
sounded  by  our  first  chairman,  Grover  Cleveland, 
until  the  present  time,  our  association  has  grown 
in  usefulness  and  importance  until  now  these  meet- 
ings are  national  in  character,  and  these  proceed- 
ings are  closely  watched  by  all  who  have  an  inter- 
est, direct  or  indirect,  in  the  grand  institution  of 
life  insurance. 

At  the  present  time  the  idea  is  quite  prevalent 
that  evils  may  be  cured  by  conversation  and  dis- 
cussion, by  magazine  articles  and  brochures,  by 
lyceum  lectures  and  correspondence  schools,  and 
ultimately  by  legislative  regulation  and  restriction. 


ADDRESS  AS  CHAIRMAN  221 

Consequently  many  of  us  look  askance  at  all  con- 
ventions of  special  interests,  fearing  that  something 
worse  than  that  which  we  have  already  experienced 
may  result  from  their  deliberations.  This  associa- 
tion is  unique.  It  is  not  formed  for  the  purpose  of 
reforming  others.  Its  aim  is  to  improve  life  in- 
surance conditions  in  which  we  all  are  vitally  and 
personally  interested. 

Besides  its  constructive  work,  of  necessity  a  great 
part  of  its  time  and  labor  is  expended  in  restraining 
unwise  action  and  checking  legislation  inimical 
to  the  policy-holder.  A  and  B,  Professor  Sumner's 
well-known  reformers,  have  been  particularly  busy 
of  late  years  in  their  tender  solicitude  for  the  wel- 
fare of  C,  and  as  A  and  B  as  a  rule  have  little  per- 
sonal and  direct  interest  in  the  subject  affected, 
some  one  has  to  look  after  the  poor  forgotten  C, 
the  man  most  vitally  involved,  who  in  our  case  is 
the  policy-holder. 

Since  the  first  of  the  year,  our  association  has 
examined  over  twenty-two  hundred  bills  proposed 
in  our  various  state  legislative  bodies  and  affecting 
life  insurance  (in  our  opinion  they  were  not  all  for 
the  general  good),  and  it  has  also  been  kept  fairly 
busy  in  endeavoring  to  eliminate  from  proposed 
federal  legislation  certain  features  which  would 
have  run  counter  to  the  best  interests  of  our  busi- 
ness. This  has  all  been  accomplished  by  careful 
educational  method  and  by  clear  explanation  of 


%m  ADDRESSES  AND  PAPERS 

the  points  involved.  So  successful  has  this  cam- 
paign been,  and  so  dreaded  are  the  visits  of  our 
representatives  by  some  of  the  quasi-ref ormers  that, 
in  certain  States,  it  is  now  declared  by  legislative 
enactment  a  crime  to  be  seen  talking  to  Mr.  Cox. 

To  conduct  this  campaign  of  education,  to  keep 
track  of  this  mass  of  legislation,  to  check  it  in  its 
inception,  where  it  is  manifestly  bad,  to  urge  its 
amendment  where  that  is  advisable,  to  create  a 
sound  and  friendly  attitude  of  the  public  mind 
toward  life  insurance,  to  break  down  local  preju- 
dice and  sectional  jealousy,  is  an  impossible  task 
for  each  company  to  undertake  acting  indepen- 
dently and  for  itself.  Economy  and  efficiency  both 
demand  concerted  action. 

At  present  combinations  are  not  popular,  but 
the  fundamentals  of  life  cannot  be  shaken  by  pass- 
ing popular  whims,  and  it  will  ever  be  true  that  dis- 
interested organization  and  honest  cooperation 
produce  the  best  results. 

A  great  mass  of  work  is  done  each  year  by  this 
association  for  the  common  good.  Policy-holders' 
rights  are  conserved  and  protected.  The  true  mean- 
ing and  intent  of  life  insurance  is  laid  before  the 
public  by  a  policy  of  intelligent  publicity.  It  sends 
its  representatives  to  all  insurance  meetings  and 
conventions.  Discussions  and  analyses  of  new 
tendencies  in  our  business  are  frequent  and  rec- 
ommendations are  made  therefrom.   The  general 


ADDRESS  AS  CHAIRMAN  223 

subject  of  health  conservation,  the  maintenance 
of  adequate  health  boards  and  bureaus  of  vital 
statistics,  the  activities  of  federal  and  state  depart- 
ments relative  to  life  insurance  —  these  and  many 
other  kindred  matters  are  constantly  being  re- 
viewed by  our  executive  committee  and  by  the 
association. 

One  wise  result  of  this  cooperation  is  the  fair 
division  of  >expense  among  the  companies.  In  an 
address  at  one  of  our  annual  meetings  by  Mr. 
Peabody,  president  of  the  Mutual  Life,  he  said 
that  "the  primary  and  fundamental  purpose  of  the 
association  is  the  furthering  of  a  rational  provision 
and  apportionment  among  the  companies  repre- 
sented in  the  association  of  the  legitimate  expenses 
which  are  necessary  honorably  to  influence  and  pre- 
serve the  rights  of  the  companies  in  all  matters  re- 
lating to  their  business  where  their  interests  are 
identical"  It  is  well  to  note  particularly  the  last 
clause  of  this  sentence.  Identity  of  interest  is  the 
corner-stone  of  the  association. 

During  the  first  few  years  of  the  life  of  the  as- 
sociation, the  proper  field  for  its  activity  had  not 
been  definitely  determined.  There  are  certain  ques- 
tions upon  which  life  insurance  executives  cannot 
agree.  Where  competition  plays  a  part,  where  the 
individual  interests  run  in  different  channels,  where 
the  nature  of  the  business  is  diverse  and  distinct, 
it  is  manifestly  impossible  to  expect  perfect  har- 


224  ADDRESSES  AND  PAPERS 

mony  of  opinion.  The  policy  of  the  association 
has  now  become  established.  Experience  has  taught 
us  to  avoid  these  subjects  and  we  confine  our  ac- 
tivities to  those  where  the  identity  of  interest  is 
clear  and  established.  I  wish  to  emphasize  this 
point,  as  it  is  misunderstood  by  some. 

Our  organization  is  each  year  becoming  more 
extended  and  more  effective.  We  have  a  library 
which  is  gradually  becoming  one  of  importance 
and  a  collection  of  pamphlets  and  books  of  refer- 
ence which  is  very  complete.  General  data  and  sta- 
tistics are  constantly  being  collected  and  scientif- 
ically tabulated  until  now,  when  any  important 
question  arises  in  insurance  circles,  the  companies 
(whether  members  or  not)  turn  to  this  association 
for  information  and  guidance.  This  is  as  it  should 
be. 

My  hope  is  that  all  companies  of  established  age 
and  of  importance  will  realize  that  we  have  in  this 
association  a  wonderful  power  for  the  uplifting  and 
strengthening  of  our  business,  and  that  for  their 
own  good  they  should  become  active  and  support- 
ing members.  While  urging  this  view,  I  also  wish 
to  reiterate  the  statement  so  often  made  that  for 
the  furtherance  of  the  institution  of  life  insurance 
all  of  the  material  which  the  association  has  in  its 
possession  is  open  at  all  times  to  all  companies, 
whether  members  or  not,  and  it  is  our  hope  that 
the  advice  and  cooperation  of  the  association  may 


ADDRESS  AS  CHAIRMAN  225 

be  sought  by  all  whenever  desired  without  any 
sense  of  personal  obligation. 

Possibly  one  of  the  most  conspicuous  elements 
in  the  development  of  life  insurance  in  this  country 
has  been  the  constant  attention  which  has  been 
paid  to  the  ever-shifting  demands  of  the  public  for 
new  forms  of  protection.  In  other  words,  life  in- 
surance, as  conducted  here,  is  constantly  changing 
in  order  to  meet  the  ever- varying  needs  of  the  times. 

This  development  has  been  most  interesting  and 
extensive  during  the  last  few  years,  due  to  the  kalei- 
doscopic changes  which  are  taking  place  in  the  pub- 
lic mind  on  economic  and  philanthropic  subjects. 
Provisions  for  old  age,  protection  to  employees  en 
bloc,  workmen's  compensation,  improvement  of 
health  conditions,  care  of  disabled  wage-earners 
are  all  burning  questions  now  —  and  it  is  the  duty 
of  the  successful  life  underwriter  to  use  his  nimble 
wit  so  that  he  may  make  the  policy  fit  the  new 
demand.  The  subject  is  a  broad  and  vital  one,  full 
of  human  interest.  It  is  not  for  me  to  discuss  it. 
The  programme  before  me  fairly  scintillates  with 
wit  and  wisdom.  I  shall  keep  you  in  suspense  no 
longer. 

[Applause.] 


THE  AGENT  AS  A  STUDENT  OF 
CONDITIONS  1 

The  association  of  Life  Insurance  Presidents  at 
its  last  annual  meeting  had  as  the  subject  under 
consideration  the  "Response  of  Life  Insurance  to 
Present-Day  Economic  Needs."  In  other  words, 
the  subject  was  "  how  to  make  the  policy  fit  mod- 
ern conditions."  My  theme  to-day  is  "the  neces- 
sity of  making  the  agent  fit  the  new  conditions." 
Our  country  is  still  young  and  undeveloped,  and 
we  are  as  a  nation  suffering  from  the  haphazard 
methods  of  the  past.  No  better  example  of  the  way 
the  development  of  the  country  has  been  conducted 
in  the  past  can  be  found  than  by  turning  to  the 
development  of  our  farming  industries.  When  the 
country  was  first  being  opened  up,  the  pioneers 
thought  nothing  of  conservation,  but  simply  fol- 
lowed the  line  of  least  resistance.  Crops  were  raised, 
soil  impoverished,  forests  destroyed,  without  any 
thought  beyond  the  near  future. 

We  are  now  reaching  the  period  where  we  dis- 
cover that  these  methods  are  outgrown  and  anti- 
quated and  that  it  is  time  to  take  up  the  great 
question  of  farming  on  scientific  and  intensive 

1  An  address  delivered  at  the  Sixth  Annual  Convention  of  the 
Home  Life  Agency  Association,  New  York,  January  13-14,  1914. 


THE  AGENT  AS  STUDENT  <m 

lines.  The  Government  has  stepped  in  behind  this 
movement  and  is  furnishing  information  and  as- 
sistance to  the  farmer  based  upon  careful  scien- 
tific research.  Under  such  a  system  our  production 
is  increasing  in  quantity  and  quality,  and  the  fu- 
ture of  the  country  in  this  department  is  now  as- 
sured. 

The  same  has  been  true  in  life  insurance.  It 
was  comparatively  easy  in  the  old  days,  with  little 
competition  and  with  little  knowledge  on  the  part 
of  the  public  of  the  science  of  life  insurance,  to  sell 
policies  which  were  simple  in  their  terms,  which 
did  not  always  meet  the  requirements  and  neces- 
sities of  the  purchaser,  but  which  were  forced  upon 
him  by  clever  salesmen  who  thought  little  or  noth- 
ing of  the  development  of  their  business  as  ex- 
tending into  the  distant  future.  It  often  occurs  to 
me  that  the  modern  salesman  of  life  insurance  is 
not  sufficiently  alive  to  the  change  which  has  come 
over  his  profession  and  that  he  is  apt  to  adopt  the 
methods  and  practices  which  were  natural  and 
successful  years  ago  in  the  infancy  of  the  business. 
The  agent  of  to-day  must  be  a  student,  not  a  book- 
worm or  a  theorist,  but  a  close-thinking,  keen- 
minded,  analytical  student  of  existing  conditions 
and  of  future  necessities,  if  he  really  wants  to  know 
what  to  do  and  how  to  do  it  effectively. 

Here  are  some  of  the  simple  yet  difficult  problems 
which  confront  him.  How  to  become  an  important 


228  ADDRESSES  AND  PAPERS 

member  of  the  community?  A  general  agent  must 
be  known  and  respected.  Suppose  a  successful 
business  man,  in  looking  over  his  accounts  at  the 
end  of  the  year,  decides  that  there  is  one  weak  point 
in  his  business  system  which  can  be  corrected  by 
the  application  of  life  insurance  on  proper  lines. 
To  whom  does  he  naturally  turn?  Would  he  be 
likely  to  consult  the  flashy,  irresponsible,  talkative, 
"fly-by-night"  agent  who  occasionally  comes  to  his 
office  with  some  rainbow-chasing  proposition?  Not 
at  all.  He  remembers  that  there  is  a  quiet,  unobtru- 
sive man  who  has  been  his  neighbor  for  years, 
who  has  during  all  that  time  represented  one  com- 
pany, who  has  always  been  regarded  as  thoughtful, 
honest,  and  reliable,  and  to  him  he  turns  for  ad- 
vice. How  can  such  a  reputation  be  established? 
First,  by  remembering  that  permanency  and  sta- 
bility are  rare  traits  in  this  country,  but  none  the 
less  valuable  on  that  account.  The  rolling  stone 
gathers  no  moss,  but  it  does  frequently  kick  up 
considerable  dust,  and  who  wants  moss,  anyway? 
This  is  the  point  of  view  of  the  average  American, 
but  nothing  gives  so  much  strength  and  force  to 
character  as  long  connection  with  one  vocation  in 
one  place.  Thoroughness  is  much  more  valuable 
than  flippancy,  though  probably  not  so  spectacular, 
and  it  is  infinitely  more  convincing.  One  cannot, 
however,  afford  to  be  a  nonentity  in  his  home 
town,  for  if  he  is,  the  longer  he  lives  in  one  place 


THE  AGENT  AS  STUDENT  229 

the  worse  it  is  for  him.  Any  man  to  be  successful 
must  be  permanently  connected  with  some  form  of 
good  local  work. 

Tastes  do  not  all  run  in  the  same  channel,  but 
in  every  community  there  are  lines  of  religious, 
philanthropic,  educational,  or  social  activity,  all 
good  in  their  way  and  all  necessary  for  a  well- 
rounded  social  development.  In  some  one  of  these 
departments,  every  man  can  find  a  place  where  he 
is  fitted  to  work  and  where  his  work  will  be  felt, 
and  it  is  the  duty  of  every  man  to  spend  a  part  of 
his  time  in  good  work  for  which  he  is  not  directly 
paid.  It  is  not  necessary  to  join  expensive  clubs 
or  to  enter  into  activities  that  mean  the  expendi- 
ture of  large  sums  of  money.  What  I  desire  to 
emphasize  is  the  responsibility  which  rests  upon 
every  man  to  make  himself  an  important  factor  in 
the  development  of  the  community  in  which  he  lives. 

Another  problem:  How  to  systematize  his  work? 
I  have  known  many  agents  who  have  been  ruined 
by  roll-top  desks  and  card  indexes,  but  I  am  a  firm 
believer  in  system  and  method.  For  instance,  the 
successful  general  agent  must  have  a  constant 
supply  of  workable  "prospects"  both  for  his  own 
use  and  for  the  use  of  his  sub-agents.  Every  agent 
must  have  some  reason  to  give,  when  he  enters  a 
man's  office,  for  the  intrusion.  He  should  have  well- 
tabulated  data  on  the  probable  insurance  require- 
ments of  the  prospective  insurers  in  his  city  or 


230  ADDRESSES  AND  PAPERS 

territory.  He  should  keep  constant  watch  of  the 
other  insurance  men  in  his  field.  Changes  are  con- 
stantly occurring  and  good  men  in  consequence  are 
often  seeking  new  employment.  Now,  how  can 
this  information  be  obtained?  There  are  hundreds 
of  ways.  Some  appeal  to  one  class  of  agents.  Others 
appeal  to  others.  Keeping  birthday  records  and 
records  of  when  the  age  changes  is  one  of  the  oldest 
and  simplest.  One  successful  agent  whom  I  know 
carries  with  him  constantly  a  book  in  which  he  jots 
down  any  information  which  comes  to  him,  di- 
rectly or  indirectly,  as  to  the  amount  of  insurance 
carried  by  men  in  his  territory.  Another  agent  has 
a  carefully  tabulated  list  of  men,  giving  their 
financial  standing,  with  the  changes  in  this  condi- 
tion from  year  to  year,  the  family  conditions  sur- 
rounding each  man,  etc.,  and  in  that  way  is  really 
on  intimate  terms  with  probable  buyers  in  his  com- 
munity. It  was  this  man  who  made  the  remark  to 
me  that  he  regarded  every  man  in  his  city  as  a 
"prospect"  until  the  contrary  had  been  proved. 
Yet  I  never  knew  a  man  who  approached  his  pros- 
pective clients  with  greater  delicacy  or  tact  and 
whose  calls  were  apparently  more  welcome  and 
well  received.  Every  one  recognizes  the  impor- 
tance of  the  sort  of  information  to  which  I  have 
alluded,  but  it  is  only  the  wise  and  trained  man 
who  can  systematize  and  tabulate  this  information 
so  as  always  to  have  it  at  hand. 


THE  AGENT  AS  STUDENT  231 

Another  problem:  How  to  gain  sufficient  knowl- 
edge about  his  own  and  other  companies?  This, 
of  course,  will  depend  largely  on  the  mental  ten- 
dencies and  peculiarities  of  each  agent.  Do  not 
try  to  be  an  actuary  and  do  not  try  to  be  an 
executive.  It  is  not  necessary  to  be  either,  in  order 
to  be  a  successful  agent.  What  the  agent  should 
know  is  the  basis  of  the  science  of  life  insurance 
and  its  fundamentals  and  essentials.  Instead  of 
endeavoring  to  accumulate  a  mass  of  superficial 
knowledge,  let  the  amount  of  knowledge  be  small, 
but  let  it  be  thorough  and  accurate.  You  can  then 
defend  your  company  from  unjust  attack,  and  when 
necessary  explain  the  science  of  life  insurance  in  a 
simple  and  intelligent  manner.  One  thing  the  agent 
should  do  in  this  connection.  He  should  be  a  con- 
stant student  of  the  tendency  of  new  thought.  He 
should  not  be  carried  away  by  the  fact  that  these 
proposed  changes  appear  to  make  the  selling  of 
his  policies  easier.  He  should  study  these  new  sug- 
gestions both  as  affecting  the  insured  and  the  com- 
pany, and  after  carefully  considering  the  matter 
from  all  sides,  he  should  decide  whether  the  ten- 
dency is  good  or  bad.  The  difficulties  which  con- 
front us  now  in  the  handling  of  our  business  are 
largely  due  to  innovations  and  so-called  improve- 
ments which  were  inserted  in  our  policy  contracts 
years  ago  simply  for  the  sake  of  making  them 
more  readily  salable . 


232  ADDRESSES  AND  PAPERS 

Following  the  line  of  personal  education,  the 
agent  is  confronted  with  the  question  of  how  to  post 
himself  on  general  conditions,  and  on  the  great  so- 
cial, religious,  and  political  problems  of  the  day.  In 
suggesting  the  best  way  to  accomplish  this,  I  should 
commence  by  stating  first  what  not  to  do.  Do  not 
allow  yourself,  under  any  circumstances,  to  read 
the  so-called  popular  and  "muck-raking"  maga- 
zines. Like  the  "penny  dreadfuls"  and  the  "dime 
novels"  of  old,  they  do  an  immense  amount  of 
harm,  not  only  because  they  spoil  all  literary  sense 
and  all  literary  taste,  but  because  they  are  full 
of  exaggerations  and  misstatements.  Collect  your 
own  facts  from  reliable  sources  and  draw  your  own 
inferences.  Remember  that  every  intelligent  man 
has  a  right  to  think  even  if  he  arrives  at  false  con- 
clusions; but  he  cannot  be  forgiven  the  adoption 
of  false  conclusions  which  he  accepts  from  another 
without  personal  investigation  and  research.  One 
of  our  greatest  national  perils  is  the  adoption  of 
half-baked  theories  because  they  seem  radical  and 
attractive.  They  are  the  patent  medicines  of  our 
social  life,  stimulating  the  national  system  arti- 
ficially and  leaving  in  their  trail  the  dull  and  dis- 
couraging reaction  which  always  follows  over- 
excitation. # 

The  agent,  in  his  rounds,  meets  the  banker,  the 
lawyer,  the  clergyman,  the  business  man,  the 
wage-earner,  —  in  fact,  all  classes,  —  and  he  must 


THE  AGENT  AS  STUDENT  233 

be  so  well  posted  himself  that  he  can  in  an  interest- 
ing, sound,  and  intelligent  way  discuss  these  impor- 
tant questions,  and  he  must  also  be  wise  enough  to 
know  that  the  best  possible  impression  is  created 
by  acknowledging  ignorance  when  one  is  ignorant 
on  any  given  topic.  It  is  essential  that  the  agent 
should  be  conservative  in  his  views  and  well 
grounded  in  his  opinions.  In  no  line  of  his  intellec- 
tual activity  is  patient  study  and  careful  reasoning 
more  necessary  than  on  these  general  topics. 

All  this  is  elementary  and  almost  self-evident, 
but,  as  I  view  the  situation,  thoughtful  men  are 
beginning  to  tire  of  the  modern  complex  and  intri- 
cate cure-alls  which  are  being  offered  as  the  reme- 
dies for  existing  ills  and  are  beginning  to  turn  back 
to  the  old-fashioned  and,  alas,  forgotten  first  prin- 
ciples. Character  and  intellectual  soundness,  after 
all,  are  worth  more  than  the  superficial  thought  of 
modern  times,  and  in  any  walk  of  life  the  man 
who  has  "found  himself"  and  who  can  be  relied 
upon  is  the  one  who  is  sure  to  leave  his  imprint  on 
the  history  of  his  community.  It  is  at  this  time  of 
the  year  excusable  if  one  sermonizes,  and  I  simply 
want  to  leave  one  thought  in  your  minds  for  this 
coming  year.  Yours  is  not  a  transient  business. 
You  are  not  dealing  in  goods  which  will  wear  out 
in  twelve  months.  Your  clients  are  entering  into 
contracts  which  will  run  for  many,  many  years,  and 
upon  the  integrity  of  those  contracts  depend  the 


234  ADDRESSES  AND  PAPERS 

happiness  and  comfort  of  their  wives  and  children 
when  they  are  gone.  No  words  can  exaggerate  or 
overestimate  the  sacredness  of  your  trust.  These 
clients  are  depending,  not  only  on  the  strength  of 
your  company,  but  on  your  wisdom  and  truthful- 
ness. If  there  is  a  profession  more  honorable  or 
more  serious  I  do  not  know  it.  If  you  are  to  be  a 
faithful  trustee,  you  must,  of  course,  be  honest 
(that  goes  without  saying).  *You  must  be  more 
than  that,  —  transparently  honest,  —  yes,  and 
more  than  that.  You  must  be  wise,  discreet,  in- 
telligent in  your  suggestion,  forceful  in  your  argu- 
ment, far-seeing  and  sagacious,  human  in  your  feel- 
ing and  tactful  in  your  relations  with  others,  sound 
in  your  reasoning  and  modest  in  your  demeanor. 
To  sum  it  up:  you  must  be  a  well-rounded,  clear- 
thinking,  Christian  gentleman. 


PRESENT  BUSINESS  CONDITIONS1 

The  student  of  the  economic  development  of 
our  country  will,  in  the  future,  turn  back  and  look 
at  this  present  period  as  one  of  intense  interest  and 
full  of  instruction  to  those  who  view  the  conditions 
analytically  and  dispassionately.  It  may  also  be 
enlightening  for  us,  who  are  in  the  thick  of  the  con- 
test, to  pause  a  moment  and  look  about  in  the  hope 
of  finding  the  causes  of  our  present  difficulties  and 
possibly  some  solution  of  the  vexing  questions 
which  surround  us. 

We  have  become  so  familiar  with  the  recent 
wonderful  growth  of  our  country  that  we  may  have 
lost  sight  of  the  effect  of  this  growth  upon  our 
national  temperament  and  habit  of  thought. 

A  glance  at  the  following  figures  is  enlightening : 

Total  bank  clearings .1883  $51,643,495,000 

1913  169,550,000,000 

Immigration  —  number  of  arrivals 1860  150,000 

1913  1,197,000 

Deposits — New  York  Clearing  House  Banks  1 876  $216,900,000 

1913  1,343,000,000 

Volume  of  foreign  trade 1867  681,615,000 

(Imports  and  exports  of  merchandise) 1913  4,276,979,000 

Production.  Wheat.  Bushels.  Corn.  Bushels.        Cotton.  Bales. 

1860     173,104,000         838,892,000         3,849,000 

1913     763,380,000      2,446,988,000       14,250,000 

1  Circular  sent  to  all  policy-holders  May  20,  1914. 


236  ADDRESSES  AND  PAPERS 

Iron.  Tons.  Copper.  Lbs. 

1860     821,000  16,128,000 

1913     31,000,000        1,280,000,000 

(1913  figures  in  part  estimated.) 

Gross  railroad  earnings 1871         $403,329,000 

1913        3,171,445,000 

Without  presenting  further  statistics,  these  fig- 
ures suffice  to  show  the  marvelous  growth  of  our 
nation  in  production,  in  transportation,  and  in 
general  commercial  activity.  Such  expansion 
naturally  called  for  great  courage,  constructive 
ability,  and  shrewd  foresight  on  the  part  of  our 
leading  business  men.  It  developed  intense  inven- 
tive activity  and  close  organization.  It  caused  a 
tremendous  strain  upon  personal  and  corporate 
credit,  and  naturally  made  it  possible  for  certain 
leaders  to  amass  great  fortunes.  As  the  opportuni- 
ties for  growth  became  greater,  combinations  and 
consolidations  grew  in  popularity  as  leading  to 
economy  of  administration  and  greater  stability 
for  our  industries  in  time  of  stress. 

All  these  increasing  activities  were  good  for  the 
individual  and  the  nation,  but  while  these  benefi- 
cent changes  were  going  on,  certain  abuses  crept 
in,  which  we  are  bound  to  consider  in  arriving  at  a 
fair  estimate  of  our  present  situation.  While  many 
so-called  "captains  of  industry"  were  amassing 
these  great  fortunes  by  perfectly  fair  and  proper 
means,  the  prevailing  conditions  also  offered  extra- 
ordinary opportunities  to  the  clever  but  less  scrupu- 


PRESENT  BUSINESS  CONDITIONS     237 


lous  leader  for  advancing  his  personal  interests  by 
shrewd  but  dishonest  methods.  Here  the  trouble 
began,  but  all  of  our  present  difficulties  cannot  be 
laid  at  the  door  of  these  adventurous  individuals. 
"  Labor  "  began  to  see  that  it  was  a  most  important 
factor  in  the  situation,  and  in  some  instances  the 
methods  adopted  by  its  leaders  were  as  unscrupu- 
lous and  as  much  to  be  condemned  as  those  of  the 
most  radical  and  untrustworthy  capitalistic  pro- 
moter. 

In  brief,  most  of  the  troublesome  factors  in  the 
business  world  of  to-day  are  the  result  of  unfair, 
dishonest,  or  misleading  methods  on  the  part  of  the 
capitalist,  on  the  one  hand,  or  the  representative  of 
labor,  on  the  other.  These  questionable  methods 
did  not  prevail  on  either  side  except  in  a  minority 
of  cases,  but  they  were  made  the  basis  of  bitter  de- 
nunciation and  attack  until  in  the  minds  of  the 
superficial  observer  the  whole  fabric  of  our  business 
life  seemed  honeycombed  with  fraud  and  deceit. 

Gradually  this  constantly  increasing  business 
activity,  this  rapid  accumulation  of  great  individual 
fortunes,  this  concentration  and  consolidation  of 
business  interests  began  to  attract  public  attention, 
and  then  a  new  factor  was  introduced  in  the  situa- 
tion. 

The  magazines  and  journals  of  the  country  took 
up  the  subject.  The  "era  of  muck-raking"  began. 
This  was  followed  by  political  activity  and  legis- 


238  ADDRESSES  AND  PAPERS 

lative  investigation.  In  the  upbuilding  of  our 
prosperity  there  was  produced  a  crop  of  dishonest 
and  scheming  business  leaders,  and  in  the  reform 
movement,  likewise,  we  find  the  selfish  demagogue 
and  the  unscrupulous  reformer  working  side  by 
side  with  the  constructive  and  high-minded  states- 
man. Neither  movement  was  free  from  criticism, 
and  it  would  be  difficult  to  determine  whether  there 
has  been  more  to  condemn  in  the  upbuilding  proc- 
ess than  in  the  corrective  movement. 

The  State  of  New  York  led  the  way  in  the  "  new 
thought,"  and  in  1905  the  life  insurance  companies 
were  the  subject  of  a  grilling  investigation  which 
developed  the  last  and  probably  the  most  serious 
phase  of  the  present  situation.  The  Legislature 
having  found,  by  failure  to  prove  the  contrary,  that 
the  system  of  life  insurance  was  intrinsically  sound, 
proceeded  to  correct  every  infraction  of  proper 
practice  by  statutes  regulating  the  business  in 
greatest  detail,  limiting  its  volume,  and  destroy- 
ing to  a  large  extent  personal  initiative  and  free- 
dom of  management.  This  was  the  first  gun  fired 
in  the  great  conflict,  and  although  this  legislation 
has  not  been  copied  by  any  other  State,  it  gave 
tremendous  impetus  to  the  cause  of  federal  and 
state  regulation  of  business  in  general. 

It  is  unnecessary  to  rehearse  all  that  has  followed 
since  in  the  way  of  legislative  enactment  and  inter- 
pretation.  We  all  know  what  the  result  has  been. 


PRESENT  BUSINESS  CONDITIONS     239 

We  now  have  three  parties  in  the  field,  almost  in  a 
state  of  active  warfare  —  the  capitalist  (by  that 
I  mean  every  man  who  has  any  money  invested,  be 
the  amount  great  or  small),  the  employed,  and  the 
consumer.  Each  is  a  necessary  part  of  our  econo- 
mic system,  each  has  a  distinct  point  of  view,  each 
is  trying  to  better  his  own  condition.  The  great 
question  before  us  is  how  to  reconcile  their  differ- 
ences and  eliminate  the  friction  which  at  the  pres- 
ent time  is*  retarding  our  material  and  industrial 
growth.  The  popular  panacea  at  present  is  legisla- 
tion. For  example,  in  1913,  the  Association  of  Life 
Insurance  Presidents  examined  twenty-two  hun- 
dred new  bills  bearing  on  the  subject  of  life  insur- 
ance, and  this  is  only  one  department  of  business 
activity. 

In  the  minds  of  many,  possibly  of  the  majority, 
there  is  no  abuse  in  business  which  cannot  and 
should  not  be  corrected  by  special  legislation.  Cer- 
tainly this  is  a  cumbersome  and  ineffective  method 
if  permanent  adjustment  of  existing  evils  is  de- 
sired. From  the  very  nature  of  the  case  the  un- 
scrupulous legislator,  acting  for  his  constituency, 
is  apt  to  vote  and  work  for  its  interest  without  re- 
gard for  the  fundamentals  of  fairness  and  justice 
to  all.  If  he  can  tax  life  insurance  companies  com- 
posed of  policy-holders  from  all  parts  of  the  world 
to  meet  the  financial  burdens  of  his  own  State,  if 
he  can  put  through  Congress  a  bill  which  will  make 


240  ADDRESSES  AND  PAPERS 

the  very  rich  bear  all  governmental  expenses,  if  he 
can  cut  down  the  revenues  of  corporations  in  which 
his  people  are  not  interested  as  owners,  in  the  hope 
that  as  consumers  they  may  secure  lower  prices, 
why  should  he  consider  whether  these  laws  are 
based  on  the  old-fashioned  principles  of  equity  and 
justice?  If  these  legislators  are  correctly  reported, 
do  we  not  find  that  in  many  cases  they  openly 
and  unblushingly  base  their  appeal  for  reelection  on 
the  success  of  their  efforts  to  "  do"  the  other  class? 

We  see,  therefore,  that  the  main  causes  which 
have  led  up  to  our  present  condition  of  unrest  are 
the  phenomenal  growth  of  our  country  in  material 
wealth;  the  abuses  and  improper  methods  of  some 
of  the  leaders  in  our  commercial  and  industrial 
development;  the  selfish,  dishonest,  and  tyrannical 
attitude  of  some  of  the  leaders  of  labor;  the  exag- 
geration and  exploitation  of  these  facts  by  unscrup- 
ulous writers  in  our  daily  press  and  magazines;  the 
offering  of  detailed  regulative  legislation  as  the 
universal  cure-all;  and  lastly,  the  untiring  activity 
of  political  demagogues,  whose  main  aim  is  to  keep 
the  public  mind  in  a  state  of  turmoil  that  they  in 
the  prevailing  confusion  may  be  conspicuously 
in  the  "limelight." 

If  there  is  any  truth  in  the  above  conclusions, 
the  remedy  seems  to  suggest  itself  from  an  analy- 
sis of  these  disturbing  causes.  Each  of  the  above 
factors  is  based  upon  wrongdoing.  It  is  not  the  busi- 


PRESENT  BUSINESS  CONDITIONS     241 

ness  head,  nor  the  labor  leader,  nor  the  journalist, 
nor  the  political  reformer  who  has  caused  the 
trouble  unless  he  has  pursued  his  activities  on  dis- 
honest, improper,  and  selfish  lines. 

It  is  time  that  as  a  nation  we  learned  again  the 
fundamental  fact,  axiomatic  in  its  simplicity,  that 
every  part  of  our  body  politic  is  dependent  upon 
every  other;  that  no  part  of  our  country  can  reach 
the  highest  grade  of  progress  unless  it  first  recog- 
nizes its  dependence  upon  every  other  section;  that 
labor  cannot  survive  without  the  support  of  capital, 
nor  can  capital  find  employment  unless  labor  is  at 
hand.  Is  not  the  solution  to  be  found  in  the  elimi- 
nation of  that  which  is  morally  unsound  from  all 
parts  of  our  business  and  political  life?  Is  it  too 
visionary  to  suggest  that,  if  the  good  in  all  depart- 
ments should  unite  to  fight  the  battle  for  the  com- 
mon weal,  the  solution  would  be  near  at  hand?  In 
view  of  the  envies,  the  misconceptions,  the  bitter 
jealousies  that  now  exist,  the  first  step  would  have 
to  be  toward  a  better  understanding  between 
these  warring  factions.  Ignorance  of  each  other's 
needs  and  ambitions,  mutual  distrust  between  the 
classes,  is  the  root  of  our  trouble.  Union  is  always 
a  source  of  strength,  but  why  union  in  one  class 
against  union  in  another?  Why  not  a  universal 
union  of  all  classes,  capitalists,  labor,  journalists, 
legislators,  in  a  real  honest  search  after  truth; 
this  movement  to  be  free  from  crimination  and 


242  ADDRESSES  AND  PAPERS 

recrimination  and  to  be  conducted  on  lines  of  mu- 
tual concession  and  respect.  Such  a  union  of  all 
interests  is  possible  only  if  we  can  create  a  quick- 
ened moral  sense.  A  true,  manly,  honest,  moral 
revival,  without  cant  and  without  hypocrisy,  is 
what  we  need,  and  in  this  lies  the  real  solution  of 
our  troubles. 


ADDRESS  AT  THE  DEDICATION  OF 

WRIGHT  HALL,  YALE  UNIVERSITY 

NOVEMBER  23,   1913 

The  graduate,  who,  from  time  to  time,  returns 
to  New  Haven,  is  impressed  by  the  constant  growth 
of  the  University  as  evidenced  by  the  number  and 
character  of  the  buildings  which  have  been  added 
during  the  last  few  decades.  A  study  of  these 
improvements  shows  that  while,  for  obvious  rea- 
sons, the  growth  could  not  in  every  instance  be 
directed  upon  the  specific  lines  which  the  authori- 
ties desired  and  considered  most  important,  yet 
there  has  been  underlying  this  whole  movement 
a  broad  and  well-defined  general  plan,  the  accom- 
plishment of  which  we  now  begin  to  see. 

The  movement  for  the  construction  of  this  build- 
ing which  we  are  formally  opening  to-day  has  been 
full  of  interest,  both  in  its  inception  and  accom- 
plishment. 

Firsf  of  all,  —  and  I  must  speak  of  this,  even  at 
the  risk  of  embarrassing  my  modest  friend,  Dean 
Wright,  —  we  felt  that  we  must  erect  a  lasting 
memorial  to  the  faithful  service  which,  as  Instruc- 
tor, Professor,  and  Dean,  he  had  consecrated  to  the 
College,  —  I  use  the  word  "  consecrate"  advisedly, 
for  there  was  in  his  work  that  singleness  of  purpose, 


244  ADDRESSES  AND  PAPERS 

that  high  sense  of  duty,  that  perfect  devotion  to 
Yale  to  which  he  had  subordinated  every  personal 
interest;  and,  further,  we  felt  that  we  desired  to  pay 
a  proper  tribute  to  that  rare  character  which  by  its 
gentle  firmness  linked  in  a  most  unique  and  de- 
lightful way  the  aggressiveness  and  activity  of  the 
present  with  the  calm  scholastic  spirit  of  the  past. 
It  seemed  to  those  who  had  the  matter  in  charge 
that  if  this  memorial  could  be  expressed  in  the  form 
of  some  practical  addition  to  the  equipment  of  the 
College,  it  would  best  perpetuate  and  convey  to 
future  generations  the  motives  and  ideals  which 
have  been  the  bases  of  his  life  work.  In  his  study 
of  undergraduate  social  life,  Dean  Wright  had 
learned  that  if  the  spirit  of  true  democracy  at  Yale 
were  to  be  perpetuated  under  present  conditions, 
it  was  essential  that  the  novice  just  entering  the 
new  circle  should  at  once  become  a  part  of  the 
College,  and  the  University,  —  that  he  should 
immediately  throw  off  past  associations,  or  at  least 
subordinate  them  to  his  new  surroundings  and  be- 
come in  reality  a  member  of  the  broader  Yale  com- 
munity, untrammeled  and  unaided  by  the  close 
affiliations  formed  during  the  period  of  preparation 
for  his  University  life.  In  short,  that  all  freshmen 
should  stand  on  an  equal  basis  with  equal  oppor- 
tunity to  make  the  most  of  membership  in  the  un- 
dergraduate body  of  Yale  College.  This,  he  knew, 
could  be  best  accomplished  by  providing  sufficient 


WRIGHT  HALL  245 

accommodation  in  the  College  dormitories  to  house 
all  undergraduates.  Wright  Hall,  which  makes 
this  possible,  carries  to  realization  one  of  Dean 
Wright's  fondest  hopes;  it  represents  one  of  his 
most  cherished  ideas;  for  all  time  it  will  emphasize 
a  fundamental  principle  in  Yale  social  life. 

But  this  is  not  all.  It  is  also  an  illustration  of 
the  loyalty  and  devotion  of  the  great  body  of  Yale 
alumni.  This  building  does  not  represent  the  gen- 
erosity of  any  one  man,  or  any  small  number  of 
men  —  many  contributors  made  this  work  possible. 
Built  to  preserve  the  spirit  of  Yale  equality  in  the 
future,  it  is  itself  the  exponent  of  that  spirit  which 
Yale  has  so  religiously  fostered  in  the  past.  Men 
of  all  ages  and  of  all  stations  joined  in  this  tribute 
to  a  noble  man  and  a  noble  idea.  Rich  and  poor 
alike  responded  to  our  appeal  as  soon  as  the  matter 
was  brought  to  their  attention.  I  wish  I  could  with 
propriety  tell  you  of  some  of  the  very  small  sub- 
scriptions which  were  doubly  impressive  because  of 
the  personal  sacrifice  they  entailed. 

One  of  the  largest  gifts  was  a  bequest  from 
John  Burnett  Collins,  of  the  class  of  '81;  others 
were  received  from  various  classes  and  others  still 
were  in  the  form  of  individual  memorials.  It  was 
thought  proper  to  perpetuate  the  character  of 
some  of  these  contributions  by  suitable  tablets 
which  have  been  placed  in  some  of  the  suites  and 
entries. 


246  ADDRESSES  AND  PAPERS 

I  have  been  asked,  as  representing  the  donors 
and  the  Graduate  Committee,  formally  to  present 
this  building  to  the  University.  This  I  now  do,  Mr. 
President.  Rarely  has  there  been  placed  upon  the 
College  grounds  a  building  so  full  of  human  inter- 
est and  of  lofty  sentiment.  It  stands  as  a  tribute 
to  a  noble  son  of  Yale,  as  a  mark  of  our  affection 
and  esteem.  It  represents  the  unification  of  under- 
graduate life  and  in  great  measure  the  solution  of 
one  of  our  most  perplexing  social  problems. 

In  the  distant  future,  the  associations  of  the  past 
will  cast  the  soft  halo  of  fond  reminiscence  over  this 
classic  Hall,  but  from  this  very  moment  may  it 
ever  stand  as  the  exemplification  and  the  symbol 
of  Yale  Loyalty  and  Yale  Devotion,  —  a  monu- 
ment to  deeds  which  have  been  done  and  a  grand 
uplifting  inspiration  for  future  achievement. 


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